Indices React to Central Bank Decisions

London: 19 March 2024 (TraderMade): Global markets reacted differently to central bank decisions in Japan and Australia on Tuesday.

Key Takeaways

• The Nikkei 225's jump reflects optimism in Japan's economic recovery after the BOJ's policy shift.
• The RBA's decision to hold rates suggests inflation concerns remain, but some progress is being made.
• Markets are watching developments closely, particularly awaiting the Federal Reserve's policy decision.

Japan Cheers Rate Hike

Japan's Nikkei 225 defied initial volatility and surged over 0.6% after the Bank of Japan (BOJ) ended its negative interest rate policy for the first time in 17 years. The BOJ raised rates to 0% from -0.1% and also abolished its yield curve control policy, marking a significant shift in monetary policy.

The Nikkei 225 (JPN225) experienced a volatile but ultimately positive trajectory over the last week (11 March to 119 March 2024).

• Early Fluctuation: The index started the week around 38,458.5 and fluctuated between 38,300 and 39,200 for the first few days.
• Mid-Week Rise: A small upward trend emerged by Wednesday, 13 March, closing at 38,618.5. This trend continued on Thursday, 14 March, with a close of 38,543.5.
• Pre-BOJ Announcement Rise: Friday, 15 March, saw a more significant jump, closing at 38,907, possibly in anticipation of the Bank of Japan's policy announcement.
• Post-BOJ Announcement Surge: The biggest gain came on Monday, 18 March, the day after the BOJ announced that it would end negative interest rates. The Nikkei surged to 39,663, its highest point of the week.
• Weekly High: The index continued its momentum on Tuesday, 19 March, closing at a record high of 39,908.

Overall, the Nikkei 225 gained over 1,450 points throughout the week, reflecting a positive market response, particularly after the BOJ's policy shift.

A New Era for Japanese Markets?

The BOJ's move signals a potential turning point for Japanese monetary policy. While the Nikkei's positive reaction is encouraging, it would be interesting to observe how this shift will impact the economy in the long term. Investors around the world will be watching Japan closely as it navigates this new era.

Aussie Market Up, But RBA Holds Rates

Australia's S&P/ASX 200 Index extended its gains for a third day, closing up 0.36%. This upward trend prevailed despite the Reserve Bank of Australia (RBA) maintaining its benchmark rate at 4.35%.

While acknowledging progress in curbing inflation, the RBA Governor cautioned that the fight is not over and highlighted the need to monitor employment data.

Wrapping-up

Global markets reacted differently to central bank tweaks. Japan's Nikkei soared after the BOJ ended negative rates, while Australia's market rose modestly despite the RBA holding rates. The Nikkei's record highs signal optimism, but all eyes are on the Federal Reserve's next move.