Fed minutes send Wall Street stocks down

Japanese Stocks Fall on Stronger Prospect of BOJ Pivot

The Japanese stock market took a steep dive in early trading on Monday, while the yen traded close to a one-month peak as the Bank of Japan (BOJ) is reportedly considering ending its yield curve control (YCC) program by next week.

The Nikkei 225 index fell 2.56%, while the safe-haven yen rose 0.10% against the US dollar, hovering near its highest level in a month reached in the previous week.

A dovish BOJ has primarily supported the significant surge of the country’s leading stock index through 2023 and early this year. The major rally has led the Nikkei to a record high, crossing the 40,000 threshold.

Expectations for a tighter policy can also help the yen, which has been weighed down by Japan’s and the US’s rates growing further apart in the past two years.

BOJ May End YCC Program, Ultra-Dovish Rates Soon

A report from a Japanese news agency stated that the BOJ may end its YCC policies and will instead announce its target volume for the bond-buying program ahead of time.

The central bank will scrap the program to see the benchmark 10-year government bond yields at about 0% in a bid to stabilize monetary policy.

The BOJ reportedly plans to decide on its YCC program and ending its ultra-dovish negative interest rates at the conclusion of its two-day policy meeting on March 19.

The prospect of Japan’s central bank’s first rate hike in March since 2007 is increasing due to the possibility of a sharp rise in wages this year.

Data from Japan’s Cabinet Office showed on Monday an upwardly revised annual gross domestic product (GDP) growth of 0.4% in the fourth quarter ending December 31.

The reading allowed the country to escape from a technical recession last year, strengthening the case for the BOJ to raise interest rates soon this year.

Continued economic strength reinforces the opportunity for the central bank to tighten its policy, which has remained ultra-loose for almost a decade.

Policymakers are expected to keep a close eye on annual wage talks between major companies and labor unions.

Increased wages may prompt the BOJ to act quickly, considering they signaled higher consumption and stickier inflation in the coming months. The two data are vital to the central bank’s policy decision.

Should the BOJ tighten its policy, it would end its prolonged ultra-loose policy and stimulus that has benefited Japanese firms.

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