BOJ rate hike ignites markets! 10-year Japanese government bond yield surges past 2%, hitting an 18-year high; yen plummets; Asia-Pacific stock markets generally rise; Nasdaq futures edge up; gold retreats to $4,330.

Friday, Asia-Pacific stock markets followed the rally in U.S. stocks overnight, with the Nikkei 225 index rising over 1% and the MSCI Asia-Pacific index up 0.6%. U.S. stock futures were mixed, with Dow futures down 0.26% and Nasdaq 100 futures up 0.1%. Cooling inflation data in the U.S. reinforced expectations for Fed rate cuts. The S&P 500 rose 0.8% Thursday, Nasdaq 100 climbed 1.5%, boosting market sentiment. The Bank of Japan announced a 25 basis point rate hike, raising its benchmark rate to the highest level in 30 years, and hinted at further tightening if conditions allow. This pushed the yield on 10-year Japanese government bonds to 2% for the first time since 2006. Yields on 30-year and 40-year JGBs also moved higher. However, the yen fell against all G10 currencies. The market believes the central bank will remain cautious in its pace of rate hikes. Most commodities came under pressure on Friday. Due to the slowdown in U.S. inflation and a strengthening dollar, spot gold fell 0.1% to below $4,330. Platinum and palladium both retreated after surging on Thursday. Silver rose 0.4%, approaching $66. Oversupply continues to weigh on oil prices, with Brent crude and U.S. WTI crude both falling. Core Market Movements: S&P 500 futures basically flat, Nasdaq 100 futures up 0.1%; Nikkei 225 up 1.25%, Japan TOPIX up 0.7%; S&P/ASX 200 in Australia up 0.5%; Euro Stoxx 50 futures down 0.3%; Dollar index flat; Yen down 0.3% to 155.92 per U.S. dollar 10-year U.S. Treasury yield up 2 basis points to 4.14%; Japan 5-year government bond yield extended gains, up 5.5 basis points to 1.485%; 10-year Japanese government bond yield up 3 basis points to 2.000%; 30-year Japanese government bond yield up 4 basis points to 3.415%; 40-year Japanese government bond yield up 3.5 basis points to 3.71%; Australia 10-year government bond yield up 2 basis points to 4.76% U.S. WTI crude futures down 0.3% to $55.81/barrel; Brent crude down 0.3% to $59.32/barrel Spot gold down 0.1% to $4,328.08/oz; spot silver up 0.7% to $65.97/oz Bitcoin up 1.6% to $86,994.64; Ethereum up 3.3% to $2,920.9 U.S. Inflation Cools, Boosting the Market Asia-Pacific stocks were broadly higher today, with tech giants like SoftBank Group and Tencent Holdings making the biggest contributions. U.S. stocks rose overnight; beyond the boost from cooling inflation and Fed rate cut expectations, rebounds in tech stocks also propelled the market higher. Robust outlook from chip giant Micron Technology eased market concerns around AI spending and valuations. According to a previous Wallstreetcn article, U.S. consumer prices rose 2.7% annually in November, lower than economists' forecast of 3.1%, and the slowest pace since early 2021. This data boosted investor confidence and supported U.S. government bonds amid rising rate cut expectations. Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management: "Given the significant month-on-month slowdown in inflation, there is clearly room to continue cutting rates to support the labor market. If the dovish camp prevails, then as the Fed continues to lower interest rates and the economy continues to grow, stock prices may be supported and move higher." It is worth noting, however, that the slowdown in inflation comes with data issues. Due to a temporary government shutdown, the U.S. Bureau of Labor Statistics was unable to collect price data throughout October, and November's sampling started later than usual. Evercore ISI economist Krishna Guha said: "On the surface, November CPI data is very mild, providing ammunition for Fed doves. But the surprise is so large, especially in housing services inflation, that the committee as a whole will be very cautious about technical challenges and judgments relating to the shutdown that may have severely distorted the situation." Bank of Japan Rate Hike Cycle Continues: Yen Falls, JGB Yields Jump According to a Wallstreetcn article, Friday saw Bank of Japan Governor Kazuo Ueda and the monetary policy committee unanimously agree to raise rates by 25 basis points to 0.75%. Despite Friday's hike, Japan's benchmark rate remains well below inflation. In Friday's statement, policymakers noted that the likelihood of their economic forecasts being realized is increasing. The BOJ made clear that if the expected economic outlook materializes, they will continue to raise borrowing costs and highlighted that underlying inflation continues to rise moderately. Harumi Taguchi, economist at S&P Global Market Intelligence, said, "I think this rate hike should have been done a long time ago." She added, "The BOJ statement shows the stance hasn't changed: if the economy and prices develop as expected, rate hikes will continue. That means further hikes are very likely." After the announcement, the yen weakened against the dollar, hitting a low of 156.16 before returning to near the 156 level, indicating that the rate hike has been fully priced in by the market. ANZ Group Sydney-based strategist Felix Ryan said: "We’re seeing dollar-yen move higher, which may indicate the market has yet to see clear signs of the BOJ's pace or range of rate hikes. We think, due to still unfavorable rate spreads, the yen will continue to lag among G10 currency crosses over the next year." After the announcement, Japanese government bonds fell, and the benchmark 10-year JGB yield rose to 2% for the first time since 2006. The Nikkei 225 closed over 1% higher on Friday. Commodities Mostly Under Pressure: Gold & Oil Fall, Silver Rises Gold fell 0.1% on Friday to below $4,330 after U.S. inflation data came in below expectations, reducing its appeal as an inflation hedge. A stronger dollar also weighed on prices. Nonetheless, gold rose 0.4% this week. Spot silver rose 0.4%, approaching $66, with a weekly gain of 5%, after hitting a record high of $66.88 on Wednesday. Silver has gained 125% so far this year, outperforming gold’s 65% rise. Tim Waterer, Chief Market Analyst at KCM Trade, said: "Softer inflation data is a double-edged sword for gold and silver—it helps justify the Fed's dovish trajectory, but also means their appeal as inflation hedges has waned somewhat. The stable dollar is also causing some headwinds." Spot platinum rose 0.5% to around $1,925, hitting a more than 17-year high Thursday. Palladium fell 1.1% to $1,677.68 after hitting a near three-year high on Thursday. Both posted weekly gains. Crude oil fell for the second straight week. Despite U.S. maritime blockades on Venezuela-sanctioned tankers raising tensions, expectations of global oversupply continued to weigh on prices. Brent crude fell over 2% this week. Risk Warning and Disclaimer The market involves risk, and investments must be made cautiously. This article does not constitute personal investment advice nor consider individual users’ special investment objectives, financial circumstances, or needs. 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