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Markets Overview am

Asian stocks extend losses as BOJ offers gloomier economic view

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  • Japan leaves rates unchanged.

Asian stocks fell on Tuesday after the Bank of Japan painted a gloomier view of the world’s third-largest economy, but the yen firmed as policymakers appeared to back away from any imminent move to cut interest rates further into negative territory.

Yen is mildly higher after BoJ left monetary policies unchanged as widely expected. Interest rate was held at -0.1% and the target of monetary base expansion was kept at JPY 80T per annum. The central bank noted in the statement that economy “continues to recover moderately as a trend” but warned that pick-up in exports paused on slowing global growth. And continued to charge commercial banks 0.1% for reserves left in its vaults.

Meanwhile, inflation expectations has been “weakening recently”. There are talks that the downgrade of economic assessment was an act to pave the way for further easing in the second quarter. Also from Japan, industrial production rose 3.7% mom in January while tertiary industry index rose 1.5% mom.

The BoJ also sounded gloomier about economic prospects, which might weigh on markets this morning.

Investors are uncertain what negative rates — currently also being used by the eurozone and other central banks on the continent — will do to the financial system.

European Central Bank president Mario Draghi, who last week cut interest rates to minus 0.4 per cent, boosted the size of its asset purchase programme and offered incentives to banks to increase lending, also said he was reluctant to push rates even lower because of the detrimental impact it could have on banks

Japanese stocks .N225 ended down 0.7 percent.

European markets looked set to follow Asia lower, with financial spreadbetters predicting Britain’s FTSE 100  to slip as much as 0.7 percent, Germany’s DAX  to fall as much as 0.6 percent, and France’s CAC 40  to ease 0.7 percent.

Such fretting has boosted the “haven” yen, leaving it up 6 per cent for the year versus the US dollar.

US 10-year bond yields are down 2 basis points to 1.94 per cent, reflecting increased demand for fixed income assets as equities pullback. Equivalent maturity Bunds are inching up 1bp to 0.29 per cent, but this is helping the euro add 0.1 per cent to $1.1114.

Gold is down $6 to $1,229 an ounce and base metals are broadly softer too as global growth concerns resurface.

Another factor damaging risk appetite on Tuesday is a further retreat for oil prices. After relinquishing the $40 a barrel level at the start of the week as its sharp bounce off 12-year lows ran out of steam, Brent crude is down 2.1 per cent to $38.69.

Markets remain sensitive to moves in energy prices, with many investors thinking sovereign wealth funds of oil producing nations are being forced to dump some of their investment portfolios to shore up creaking domestic finances.


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