Nikkei logs steep losses following sudden modification by the Bank of Japan in Yield Curve Control (YCC) to lead the Asian stock markets to sink further deep. The Nikkei 225 slumped by nearly 3%.
The Policy Shift by the Bank of Japan
The Bank of Japan widened the YCC tolerance range allowing the yields on the Japanese Government Bonds to be subject to fluctuation.
The BoJ fixed the policy balance rate at -0.10% and adjusted the YCC control band. The central bank stated that the benchmark interest rates were kept steady, along with announcing the yield curve control policy shift.
The ten-year government bond yield fluctuations will be expanded from +/- 0.25% points, which it currently is, to +/- 0.5% points.
The BoJ clarified that they intend to shape an improved market functioning and smoother yield curve formation as well as maintain financial conditions which are accommodative.
There is a hidden indication that this is probably the beginning of the adjustments the central bank will announce in the future. This is why the policy change immediately impacted the global stock market.
While the Japanese stock market had expected the same old ultra-dovish policy from the Bank of Japan, the seemingly less accommodative stance surprised the market, impacting the stocks, including the crucial Nikkei 225 index.
Nikkei 225 Equity Index
Immediately after the announcements, the Nikkei 225 index fell to 26568.03 by 2.46% on December 20, a new two-month low. To understand the significance of this fall, first, you must know what Nikkei 225.
What is Nikkei 225?
For the unversed, Nikkei 225 is a Tokyo Stock Exchange index, the calculation of which began in 1950. The components of the Nihon Keizai Shimbun or Nikkei price-weighted average equity index are reviewed yearly. From 1975 to 1985, the primary stock index of Japan was named Nikkei Dow Jones Stock Average.
The Nikkei 225 Futures was launched in 1986 at Singapore Exchange, in 1988 at Osaka Securities Exchange, and in 1990 at the Chicago Mercantile Exchange.
Nikkei 225 index is considered a barometer of the economy of Japan, gauging the behavior of 225 Japanese companies listed on the TSE.
The index reached a historical height of 38,957.44 on December 29, 1989, but has seen a continuous fall afterward.
Nikkei 225 companies are large-sized blue-chip companies that cover a broad strip of Japanese industries.
Nikkei 225 Index ETF
The index doesn’t allow individuals to invest in it directly, but you can buy the stocks through Nikkei 225 index ETF or exchange-traded funds to obtain exposure.
Tax implications make buying and managing individual stocks in this TSE index impractical and costly. Therefore it is wiser to gain exposure via ETFs, which trade all day, unlike mutual funds, which are priced at the day’s end. ETFs offer diversification with each investment and lower costs than actively managed funds.
Japanese ETFs like Blackrock iShares Nikkei 225 index ETF, Daiwa Asset Management, and Nomura Asset Management track the Nikkei trade.
Japanese yen
Japanese yen strengthened over two percent and stood at 133.37 against the USD soon after the Bank of Japan’s announcement. This was its highest level in more than three months. The Japanese are the largest US Treasuries holders, and the Japanese yen is frequently used as a funding currency.
Losses and Gains
Losses in the shipbuilding, mining, and Gas & Water sectors affected the shares. The session on the Nikkei 225 saw the maximum gain going to Dai-ichi Life Holdings Inc and the maximum loss to Mitsubishi Motors.
