Japan Stocks Surge as BOJ Stimulus Tweaks Weaken Yen; Oil Jumps 

• Dollar gains versus most peers ahead of Fed policy decision
• European, U.S. equity index futures advance; nickel falls

Japanese stocks rallied, leading gains in Asia, as tweaks to the Bank of Japan’s monetary policy weakened the yen and lifted the nation’s 10-year bond yield to zero for the first time since March. European and U.S. equity index futures rose with oil.

The Topix index climbed the most this month in Tokyo, with banks and insurers surging as the central bank refrained from moving deeper into negative interest-rate territory and shifted the focus of its stimulus to controlling the yield curve. The yen weakened by the most this month and the nation’s long-term bonds dropped. The dollar strengthened versus the majority of its major peers before a Federal Reserve meeting, while oil jumped toward $45 a barrel on prospects major producers will agree to cap output.

The BOJ’s “new framework will allow it to undertake more negative rate cuts while mitigating the downside impact on financial institutions’ profitability,” said Mansoor Mohi-uddin, a Singapore-based strategist at Royal Bank of Scotland Group Plc. “The risk is for more easing action in the fourth quarter.”

The BOJ’s decision had the potential to jolt financial markets regardless of the outcome as opinions varied widely over what, if any, policy changes would be made. While the Fed’s meeting is being viewed with greater certainty — all but four of 102 economists surveyed by Bloomberg predict the U.S. central bank will hold off from raising interest rates — investors will be looking for any signals regarding the timing and pace of future hikes.

Monetary authorities will continue to hog the limelight on Thursday with speeches due from the new governor of the Reserve Bank of Australia as well as the heads of the European Central Bank and the Bank of England. In addition, central banks in countries including New Zealand, Norway and South Africa have policy decisions due that day.

Stocks

The MSCI Asia Pacific Index rose 1 percent as of 7:05 a.m. London time, after rallying 1.6 percent in the last three sessions. The Topix index jumped 2.7 percent, with gauges of banks and insurers soaring more than 5 percent on optimism higher long-term bond yields will boost their earnings. BOJ Governor Haruhiko Kuroda is due to speak at a press briefing after the close of trading in Tokyo and local investors will have plenty of time to digest his comments with Japanese markets shut Thursday for a holiday.

“We’re seeing a relief rally since the BOJ not to immediately cut rates further,” Khiem Do, the head of multi-asset strategy at Baring Asset Management (Asia) Ltd. in Hong Kong, said by phone. “That’s why the Japanese banks are rallying. Its seems there’s domestic political pressure for the BOJ not to hurt the banks’ profits anymore.”

The Topix rose by more than the Nikkei 225 Stock Average as the BOJ said its purchases of exchange-trade funds will be concentrated more heavily on those focusing on the broader benchmark. Fast Retailing Co., the heaviest-weighted stock in the Nikkei 225, slid as much as 4.6 percent before reversing declines.

Futures on the S&P 500 Index added 0.5 percent, having extended gains after the BOJ’s announcement. Contracts on the Euro Stoxx 50 Index rose 0.7 percent.

Currencies

The Bloomberg Dollar Spot Index climbed 0.2 percent, having been little changed in the run-up to the BOJ’s decision. The yen slid 0.9 percent to 102.60 per dollar, leading declines among major currencies.

The BOJ said that the monetary base target, which previously had been set at annual increases of 80 trillion yen ($780 billion), may now fluctuate in the short term as policy makers seek to control the yield curve. It also pledged to expand the monetary base until inflation is stable above the 2 percent target.

“BOJ’s talk about increasing the amount of base money until inflation gets to 2 percent has seen the yen weaken off,” said Roger Bridges, the chief global strategist for interest rates and currencies in Sydney at Nikko Asset Management Co.’s Australian unit. “We need to wait a couple of days to see the wash-out to determine if the yen weakness will continue.”

Bonds

Japan’s 10-year bond yield increased by as much as seven basis points to 0.005 percent after the BOJ said it would adjust purchases of sovereign debt to keep the rate around zero.

The rate on similar-maturity U.S. Treasuries rose by two basis points to 1.71 percent.

Commodities

Crude oil climbed as much as 2.5 percent to $45.14 a barrel ahead of a government update on U.S. stockpile levels. Inventories fell by 7.5 million barrels last week, the American Petroleum Institute was said to have reported late on Tuesday ahead of the official figures. Algeria’s energy minister said OPEC may turn its informal talks next week into a formal session, a hint that major producers may agree measures to limit output and support prices.

“History suggests that OPEC action is unlikely, but there will be talk and that will move the market,” said Evan Lucas, a market strategist at IG Ltd. in Melbourne. “The API data gave the market a boost, but prices are coming from a low base.”

Nickel fell 0.9 percent in London, after jumping 6 percent in the last two sessions, ahead of the results of a mining audit by the Philippines. It has climbed about 16 percent in 2016 as the Philippines — the biggest supplier of the mined metal — shutters sites for failing to meet environmental standards. The government could tell more mines to stop operating, Environment and Natural Resources Secretary Gina Lopez said on Monday.

Source: Bloomberg

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