Yen Soars In Challenge To BOJ; Market Buoyed By Inflation Retreat

Asian stocks rose on Friday, Jan. 13, 2023, as investors cheered a slowdown in US inflation, while the yen hit a seven-month high and Japanese bond yields broke above the central bank's target as markets challenged Tokyo's commitment to loose monetary policy, Tom Westbrook and Kevin Buckland reported for Reuters.

Photo Insert: The yen, which surged 2.7% against the dollar overnight, kept going and rose about 0.2% further to 128.65 per dollar.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.8% to hit a new seven-month high and were headed for a third consecutive week of gains. Japan's Nikkei fell 0.4% and the yen, which surged 2.7% against the dollar overnight, kept going and rose about 0.2% further to 128.65 per dollar.

It is up 6% in little more than three weeks since the Bank of Japan (BOJ) stunned markets by widening the band around its 10-year bond yield target.

A newspaper report flagging the possibility of more flexibility has redoubled bets on a coming shift out of an ultra-easy policy that seeks to pin yields near zero.

The yield on 10-year Japanese government bonds breached its new cap of 0.5% on Friday morning trade at 0.53%. The BOJ was making unscheduled bond purchases in response.

"The market is expecting at the next meeting that they will increase the band for the 10-year again," said Naka Matsuzawa, chief Japan macro strategist at Nomura, referring to the central bank's upcoming meeting running 17-18 January.

"I think it's too early for the BOJ to give up," he added. "It still has ammunition to defend the 0.5% yield cap."

The BOJ had described its December move as aimed at addressing distortions in the bond market, and defended the new target with bond purchases - but that is under immense pressure now as traders have a sniff of a shift at next week's meeting.

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