Bank of Japan governor Masaaki Shirakawa will step down early

Key news

Bank of Japan governor Masaaki Shirakawa will step down early. This has boosted Japanese shares and sent the yen to a three-year low as the markets price in that the new governor will be more dovish than Shirakawa.
The US stock markets saw gains around 1% in yesterday’s trading as risk appetite returned after some market jitters on Tuesday.

Markets Overnight

This morning the Japanese Nikkei index is up more than 4%. Investors are celebrating that Bank of Japan governor Masaaki Shirakawa will step down ahead of schedule. This opens up the spot for a new governor who will be more committed to implementing Bank of Japan’s new 2% inflation target than Shirakawa seems to be.

Market participants are now pricing an even easier monetary policy stance from Bank of Japan. This has not only boosted the Japanese stock market this morning, but also sent the yen lower – dropping to the weakest level in almost three years against both the dollar and the euro.

The monetary policy-related news out of Japan has also helped boost the positive sentiment in other Asian stock markets this morning. The markets are also getting a lift from the fact that the US stock market saw nice gains yesterday with the major indices rising around 1%.

The gains in the global stock markets come after a pullback on Tuesday, which now looks like minor jitters in an otherwise bullish market. The expectation of easier monetary policy in Japan, the US and the UK certainly helps the sentiment as does general optimism about the state of the global economy.

The weaker yen is good news for Emerging Markets’ currencies and commodity currencies. One of the biggest gainers overnight has been the Mexican peso, which continues to gain on optimism that the US recovery will spill over the Mexican economy. Another example is the Canadian dollar, which this morning is trading close to a oneweek high against the US dollar.

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