Stocks and bonds dip as central banks jack up rates to tame inflation

The Japanese currency JPY= headed for its biggest daily slide since mid-February, with the dollar up 1.2% to 157.82, after the Bank of Japan raised rates to a 31-year high of 1.25%. The decision, though expected, excited yen bears with two board members dissenting to the hike. The Japanese currency has risen 1.2% so far this month, driven by expectations of a faster pace of hikes from the BOJ and early signs of repatriation from Japanese investors. But the [Federal Reserve](https://www.reuters.com/markets/us/federal-reserve/) raised rates for the first time in three years on Wednesday and switched to a more aggressive stance on inflation, which knocked the yen, putting it on course for its worst weekly performance against the dollar in two years, down 2.6%. BOJ Governor Kazuo Ueda said, with underlying inflation approaching 2%, the bank's policy focus had shifted, and most of the central bank's board members believe policy is still accommodative, even after Friday's hike. Chris Scicluna, head of research at Daiwa Capital Markets Europe, said with the Fed now raising rates, there was a risk the yen could weaken sharply again, further exacerbating inflation. “That certainly should keep the door open to further tightening, assuming inflation and domestic demand remain resilient. Another rate hike to 1.50% before the end of the year would seem a decent bet,” he said. A retreat in the oil price provided little respite for stocks or bonds, which registered modest price losses. Stocks in Europe .STOXX fell 0.5% on the day, while US stock futures ESc1, NQc1 rose 0.2% to 0.5%, led by strength in tech shares, which shook off the negativity earlier in the week from dire warnings from the top AI executives about the threat to humanity from unchecked AI development. Brent crude futures LCOc1 fell as much as 2.8% to $101.92, following a Reuters report that China has asked Tehran to help rein in the Houthis after their military blitz over the past week. That, together with hopes Gulf exporters may find alternative routes to ship oil, has put crude futures on course for a 2% weekly drop, although the strain is showing in physical markets, where prices are around $120. Bond prices edged up, although volatility was far lower, after another brutal selloff this week that took the 10-year US Treasury yield US10YT=RR beyond 5% to its highest since 2007. It was last at 4.96%. Yields across the euro zone DE10YT=RR and in Britain GB10YT=RR have also hit multi-year highs in the last week but by Friday were only a touch higher on the day. The BOJ decision wraps up the series of major central bank meetings in which policymakers have ratcheted up hawkish rhetoric. September has seen the biggest rise in average interest rates across the G10 since July 2023, with four raising rates and others indicating they may need to do so before too long. The Bank of England on Thursday left UK rates unchanged but said it may have to hike if the Iran war drags on. The European Central Bank last week also flagged the need for further tightening as it raised rates. And Australia's top central banker on Friday said some of the upside risks to inflation flagged by policymakers appeared to be materialising. Global shares and bonds fell on Friday while Japan's well-telegraphed interest rate hike fell short of supporting the yen, as markets approached the end of a turbulent week marked by a global push by central banks to quell inflation. Monetary policy has been the prime focus this week, as the [war in the Middle East](https://www.reuters.com/world/iran/) nears the seven-month mark with few signs of ending, which is keeping oil prices above $100 per barrel and fanning inflation fears.

Stocks and bonds dip as central banks jack up rates to tame inflation

Yen weakens after Bank of Japan hike

Oil retreats, but stocks and bonds still slip

Hawkish central banks keep pressure on markets

Global shares and bonds fall as central banks stay hawkish

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