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Market minds: Bank of Japan intervenes and raises interest rates, say no more

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A look at today’s upcoming US and global markets from Dhara Ranasinghe.

What a 24 hours it was in the financial markets. Let’s start with Japan – just hours after confirming an extremely loose stance on monetary policy, the authorities stepped in to buy the yen for the first time since 1998 to prop up the volatile currency.

The irony for some is that Japan’s ultra-low interest rates contrast with the sharp rise in borrowing costs in the US. Remember, the Fed raised interest rates by 75 basis points again in a sign that it will do whatever it takes to stamp out uncomfortably high inflation.

So the background is that the dollar will rise not only against the yen, but also against the euro and the British pound.

However, the Japanese authorities are sending a strong signal that the USD/JPY is not a one-way bet and the markets are right to heed this warning. Before the start of the New York session, the yen was up nearly 1% against the dollar.

After the rate hike on Wednesday, others followed suit. The Norges Bank raised interest rates by 50 basis points and the Swiss National Bank raised interest rates by 75 basis points – bringing Swiss rates positive for the first time in eight years.

The importance of the Swiss movement should not be lost on the markets, as it draws a line under the era of negative interest rates in Europe.

This makes Japan, the outgoing doves, the only major central bank with negative rates, so it’s no wonder if the yen pulls back from here.

Meanwhile, trade in US stock futures suggests that Wall Street may be due for some calm after the Fed’s sell-off on Wednesday.

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An aggressive Fed may be causing pain around the world with a stronger dollar, but it is also causing growing concern at home.

Graphic: Japan steps in to support the battered yen https://fingfx.thomsonreuters.com/gfx/mkt/xmpjoaabdvr/Japan2209.png

Key developments that should provide further guidance to the markets on Monday:

Bank of England interest rate decision at 1100 GMT

The central banks of South Africa, Egypt, the Philippines, Taiwan and Turkey meet

Weekly unemployment claims in the US

Canada New Home Price Index

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