Japan bond yields jump after BOJ hike, Wall Street poised for gains
A stock quotation board is reflected on window glasses at a building in Tokyo, Japan December 11, 2025. REUTERS/Issei Kato
LONDON/SYDNEY, Dec 19 : Japanese government bond yields jumped and the yen weakened on Friday after the Bank of Japan raised interest rates to a three-decade high and left the door wide open to further tightening.
Global stocks saw some gains, with European stocks edging 0.1 per cent higher but failed to match much stronger trading sessions in Asia and the U.S. overnight. Wall Street futures pointed to gains of between 0.3 per cent and 0.5 per cent, after rallying Thursday on stellar results from chipmaker Micron Technology.
Investors were also digesting news that the European Union would provide Ukraine with 90 billion euros ($105.4 billion) of support over the next two years, but failed to agree on an ambitious plan to use frozen Russian assets to finance this.
The BOJ's widely expected rate hike led investors to sell the yen on the fact and drove some profit-taking. The dollar was last up as much as 1 per cent on the yen at 157.07., while Japan's 10-year government bond yield hit a 26-year peak and the Nikkei closed up 1 per cent.
The BOJ's decision to raise short-term rates to 0.75 per cent marks another step in ending decades of huge monetary support in the country. Analysts said it would need to plot a careful path to manage inflation as Japan's new government prepares major fiscal stimulus.
“Markets expect the Bank of Japan will have to raise rates more," said Shaniel Ramjee, co-head of multi-asset at Pictet Asset Management. "That extra fiscal spending might continue to weaken the yen, which exacerbates inflation.”
Capital Economics senior economist Abhijit Surya said he expected BOJ rates reaching 1.75 per cent by 2027.
ECB, BoE OFFER DIFFERENT LEVELS OF HAWKISHNESS
Wider sentiment got a boost from a surprise slowdown in U.S. consumer price inflation to 2.7 per cent, though analysts cautioned the data were clearly distorted lower by the government shutdown and could not be taken at face value.
Pricing for the Federal Reserve moved only marginally with a rate cut in January implied at just 27 per cent, while 10-year Treasury yields were at 4.1354 per cent, some way from the recent 3-1/2-month top of 4.209 per cent.
Overnight, British bonds had taken a hit after the Bank of England cut rates as expected but only after a very tight 5-4 vote. Policymakers also signalled caution about the pace of future easing and another cut is now not fully priced in until June.
The European Central Bank was even more hawkish as it held rates at 2.0 per cent and signalled a likely end to the easing cycle. Markets imply only a minor chance of a cut for all of 2026.
In commodity markets, gold slipped 0.1 per cent to $4,329 an ounce, trading still below its October peak of $4,381. [GOL/]
Brent fell 0.5 per cent to $59.51 a barrel, while U.S. crude eased 0.5 per cent to $55.89 per barrel.
($1 = 0.8536 euros)
