Japan stimulus inaction sends yen soaring

A lack of fresh stimulus from the Bank of Japan sent the yen soaring and world stocks into the red on Thursday, half a day after the US Federal Reserve signalled it too was hitting the policy pause button.

The yen surged almost three per cent against the dollar, the euro and sterling in a sharp reaction to the BOJ inaction, putting it on course for its biggest jump against the greenback since February and in five years against the two European currencies. Tokyo's Nikkei slumped 3.6 per cent, the pan-European FTSEurofirst 300 was down over 1.2 per cent and futures markets pointed to Wall Street losing as much as 0.8 per cent when it reopens. The BOJ's decision to hold steady in the face of soft global demand and a sharp rise in the yen was particularly jarring for markets after media reports ahead of the meeting had said it wanted to go deeper into negative interest rates.

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On the key element of the speculation, applying sub-zero rates to the BOJ's main bank lending programme, governor Haruhiko Kuroda spelled things out clearly.

"I know such a programme is adopted by the ECB (European Central Bank) ... At this stage, we don't have any plans to consider this option. This wasn't discussed at today's meeting," he said.

For analysts, the combination of the BOJ's sit-and-wait message and the signal from the Fed on Wednesday that is no rush to raise rates again, fed a broader shift in sentiment that has been gathering momentum since the start of the year.

"The market was expecting something from the BOJ and they did not deliver so the market has basically wiped out all the rally in dollar/yen," said Societe Generale FX strategist Alvin Tan.

"For the last two to three years the big theme in the market was monetary divergence. But in the last few months the legs have really been cut off that... so currencies are all over the place."