Japanese stocks surge after BOJ’s monetary policy decision

Japan's Nikkei share average surged by 1.41 per cent, and the yen weakened against the dollar following the Bank of Japan's (BOJ) decision to maintain its ultra-loose monetary policy, providing no indications of an early exit from negative interest rates. The Nikkei closed at 33,219.39, while the broader Topix index turned around an early loss, finishing 0.73 per cent higher.

The yen depreciated to 143.78 per dollar post-announcement, eventually settling around 0.5 per cent lower at 143.50. Market analysts observed that the BOJ's cautious approach to removing negative interest rates remained unchanged, underlining the central bank's lack of confidence in achieving its price target.

The BOJ decided to keep its short-term rate target at -0.1 per cent and the 10-year government bond yield target at around 0 per cent, consistent with market expectations. Additionally, the bank maintained its dovish guidance, stating it would take additional monetary easing steps "without hesitation" if necessary, reflecting the high uncertainties surrounding Japan's economy and prices.

While there had been speculation about the BOJ potentially exiting negative short-term rates next month, the central bank's decision to wait and assess global fundamentals aligns with the anticipated rate-cutting cycles in the US and Europe next year.

BOJ Governor Kazuo Ueda is scheduled to hold a news conference later. Analysts expect the yen to continue tracking changes in US yields influenced by the Federal Reserve's policy outlook, while the Nikkei's performance will respond to the exchange rate.

In the equity market, technology shares extended gains, with Tokyo Electron rising 3.67 per cent and Advantest advancing 4.1 per cent. Automaker shares, initially under pressure, rebounded as the weakening yen boosted the outlook for overseas revenue, with Toyota Motor gaining 0.8 per cent and Nissan rallying 0.95 per cent.

On the downside, banks were among the worst performers, reflecting uncertainty about an end to the yield-suppressing stimulus that has impacted profit from lending and investing. The Tokyo Stock Exchange's banking sub-index declined by 0.43 per cent. Airlines and rail operators also recorded losses, dropping 0.82 per cent and 0.9 per cent, respectively.

(With Reuters inputs)