Bank of Japan policy tinkering explained

The U.S. Federal Reserve’s FOMC decision on interest rates is due at 2:00 p.m.

At a news conference, BoJ Governor Haruhiko Kuroda said the idea is to have a more flexible framework than before to be able to better respond to financial conditions. Energy and metals prices are rising as the dollar gets a bit weaker. Japan’s Nikkei 225 Index surged up by 1.9 percent, while Hong Kong’s Hang Seng Index climbed by 0.6 percent. The Nasdaq composite rose 31 points, or 0.6 percent, to 5,272.

At the two-day monetary policy meeting that ended earlier in the day, however, the BOJ refrained from pushing the interest rate on commercial banks’ current account deposits at the central bank deeper into negative territory.

Japan’s central bank unveiled an overhaul of monetary policy on Wednesday, pledging to double down on its attempts to stoke inflation and kickstart the torpid economy.

Others point out if central banks really want to create inflation, it is well within their means, if they are prepared to take bolder steps such as monetisation of government debt, which has been openly discussed. While the yen weakened in the immediate aftermath of the announcement, it has since reversed that move to trade at 101.37 to the dollar by 6:18 a.m. ET.

Spot gold fell 0.3 percent to $1,311.43 an ounce by 0449 GMT.

Oil prices held early gains with USA crude oil futures up 1.9 percent to $44.93 per barrel.

The BOJ initially forecast that inflation would reach 2 percent in around two years. Therefore, the market’s focus, as has consistently been the case from the beginning of the year, will be concentrated on the words emanating from the Fed statement as it relates to the indication of a possible rate hike in December and the potential pace of tightening going forward. “And you could argue the (stock) market was satisfied that you didn’t see a Fed anxious to raise rates dramatically”, said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

KB BEAT: KB Home added 58 cents, or 3.5 percent, to $15.51 after the homebuilder disclosed strong results.

Europe’s STOXX 600 rose 1 percent as euro zone banking shares rallied almost 3 percent. The Fed said USA economic activity had picked up and job gains were “solid” in recent months. Microsoft said it will buy back $40 billion in stock and also raised its quarterly dividend.

Traders’ expectations for a December hike rose slightly after the statement, to 59.3 percent from 59.2 percent on Tuesday, according to CME Group’s FedWatch program. Based on the assessment of its economic activity, prices and the previous measures employed, the Bank of Japan has tweaked its policy stance – abandoning its base money target and bringing in QQE with yield curve Control.

US financial markets are modestly higher as investors await the Fed’s statement and Chair Janet Yellen’s 2:30 p.m. press conference.

BONDS, CURRENCIES: Bond prices fell. The euro dipped to $1.1144 from $1.1157.