Yen declines as BOJ makes minor policy adjustments, European stock futures slightly down

The yen saw its most significant drop in two months following the Bank of Japan‘s announcement of minor policy adjustments, which left some market participants expecting more. Meanwhile, European equity futures experienced a slight dip.

The Japanese currency fell below 150 per dollar, while the nation’s stocks saw an increase in response to the decision, which maintained the central bank’s cap on long-term yields at 1% and left the negative interest rate untouched.

Both European and US stock futures saw declines along with Asian stocks, influenced by a contraction in a gauge of Chinese manufacturing and concerns over tensions in the Middle East. Israel carried out strikes in Lebanon and escalated ground operations in Gaza, with Prime Minister Benjamin Netanyahu ruling out a cease-fire.

The US dollar strengthened against most of its Group-of-10 peers, with a Bloomberg gauge of the US currency rebounding after a two-day decline. Cash Treasuries saw a slight increase. The US Treasury reduced its estimate for federal borrowing for the current quarter, citing stronger-than-expected revenue.

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Flexible approach

The Bank of Japan announced a more adaptable approach to controlling yields on 10-year government debt, marking a departure from its previous commitment to daily bond-buying operations at 1%, which effectively set a cap at that level. Earlier, the Nikkei had reported that the BOJ was considering allowing yields to exceed the 1% cap.

“Dollar-yen appears disappointed by the extent of the tweak,” especially after the Nikkei report, remarked Carol Kong, a strategist at Commonwealth Bank of Australia in Sydney. She added, “The statement also continues to strike a dovish tone with the BOJ reiterating that it will patiently continue with monetary easing.”

In Asia, oil prices saw a slight increase after a decline on Monday due to indications that the Israel-Hamas conflict would remain contained and amid potential signs of softening demand.

Samsung Electronics Co. anticipates an acceleration in the recovery trend in the memory market next year, with the company reporting third-quarter profits that exceeded expectations.