Stocks jump worldwide as Bank of Japan rate goes negative

Fri Jan 29, 2016 4:24pm EST
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By Herbert Lash

NEW YORK (Reuters) - Stocks jumped worldwide and the yen slumped on Friday after the Bank of Japan stunned markets by adopting negative interest rates, while hopes the Federal Reserve will slow the pace of future U.S. rate hikes also underpinned stock gains.

The BOJ unexpectedly cut a benchmark rate below zero in a bold move to stimulate the Japanese economy. Volatile markets and slowing global growth have threatened the central bank's efforts to overcome deflation.

Equities surged globally, the yen tumbled and sovereign debt rallied after the BOJ said it would charge 0.1 percent for excess reserves, an aggressive policy pioneered by the European Central Bank. The BOJ said it may cut rates further if necessary.

A sharp braking of U.S. economic growth in the fourth quarter also raised expectations that the Fed will not be able to hike rates four times this year as it has indicated.

U.S. gross domestic product rose at an annualized 0.7 percent, below an expected 0.8 percent gain, as a strong dollar and tepid global demand hurt exports.

"Four rate hikes this year is not even a possibility," said Jason Pride, director of investment strategy at asset manager Glenmede. The GDP data, never a good data point to make economic decisions, was "a good reason for a relief rally," he said.

The yield on benchmark 10-year Japanese government bonds JP10YTN=JBTC plunged to a record low of 0.09 percent, and the yen JPY= fell 1.90 percent against the U.S. dollar to 121.07 yen, its biggest daily decline in more than a year.

The Nikkei share index .N225 whipsawed, but closed 2.8 percent higher. Shares on Wall Street and in Europe rose more than 2 percent, while MSCI's all-country world stock index .MIWD00000PUS gained 2.06 percent.   Continued...

Traders work on the floor of the New York Stock Exchange January 29, 2016. REUTERS/Brendan McDermid