ASX futures were 72 points or 1 percent higher at 7102 near 7am on Wednesday, pointing to gains at the open.

American stock indexes wavered and bond yields rose after the Bank of Japan shocked investors by smashing a cap on its government bond yield, a step back from its ultra loose monetary policies.

The S&P 500 slipped and gained 0.3% before finishing near the day’s high on Monday. The technology-heavy Nasdaq Composite rose 0.2%, and the Dow Jones Industrial Average added 0.5%. The indices had fallen for the fourth straight day on Monday.

Among the 11 sectors in the S&P. 500, only consumer discretionary and consumer staples were down in early afternoon trading.

Japan’s policy shift caught markets off guard, coming at a meeting late into Gov. Haruhiko Kuroda’s decade at the helm. Most central banks around the world have already begun to tighten monetary policy in an effort to tame inflation and move in line with the US dollar, with Japan a notable exception.

In commodity markets, Brent crude oil rose to $US 79.89 a barrel while gold rose 1.66% to US$1,817.25.

In local bond markets, Australian 2 Year government bonds increased to 3.26% and the 10 Year is up to 3.72%. And abroad, the yield on 2 Year US Treasury notes fell back to 4.27% and the yield on 10 Year US Treasury notes was down at 3.69%

The Australian dollar dipped to a one-month low of 66.72 US cents, from 66.98. The Wall Street Journal Dollar Index, which measures the U.S. currency against 16 others, fell to 97.1.

Asia

Chinese stocks added to losses today as regional markets weakened, with investors pausing for breath in a rally fed by China’s reopening from Covid and bracing for a possible recession. Nearly every sector, from consumer-related companies to banks, fell. The food and real estate sectors were among the biggest losers, with index heavyweight Kweichow Moutai down 3.3% and Greenland Holdings off 3.4%. Chip makers also bucked the broader market’s decline, as shares of Semiconductor Manufacturing International Corp. added 0.2%. The Shanghai Composite Index fell 1.1% to 3073.77, closing below the psychologically key 3100 level. The Shenzhen Composite Index fell 1.2 percent and the ChiNext Price Index was down 1.5 percent.

Hong Kong’s Hang Seng Index finished down 1.3% at 19094.80. Nearly every sector, from tech to transportation, fell. Shares of Agile Group and CIFI Holdings fell 17% and 16.5%, respectively, after the two property developers announced they intend to raise cash via share placements to repay their offshore debt. The Hang Seng Tech Index fell 3.1 percent, to close below the 4000 level at 3996.36. Among tech companies, Baidu fell 4.1 percent, and Tencent fell 3.4 percent, paring their post-reopening gains since China said it was reopening.

Japanese stocks finished well into the red as the Bank of Japan loosened its yield control, allowing the yield curve to rise, knocking the real estate and auto sectors. Sumitomo Realty & Development lost 5.5%, and Nissan Motor was down 5.0%. The Nikkei Stock Average lost 2.5% to 26568.03 on Wednesday, the largest percentage-point drop since Oct. 11.

Europe

Most European stocks dropped after strategists predicted that a bond-yield-related shift from the Bank of Japan heightened the prospects for higher interest rates. The pan-European Stoxx Europe 600, the French CAC 40 and the German DAX each fell around 0.4%, while the British FTSE 100 rose 0.1% as sterling fell versus the dollar and euro.

Eurozone government bond yields rose after the Bank of Japan tweaked its yield-curve-control policy in a surprise adjustment.

This tweak, which would see the BoJ allow the 10-year yield on Japan's government debt to reach 0.5%, up from a former cap of 0.25%, "is widely viewed as signaling the start of a potential exit strategy for their ultra-accommodative monetary policy," Deutsche Bank's strategists said in a note. “I suppose the point not to underestimate is how big a deal this could be as a tightening by a BoJ that then removes one of the last global anchors that has helped keep borrowing rates low more generally… of course.” Deutsche Bank’s Jim Reid wrote.

European bank shares were up on Tuesday afternoon as investors absorbed the possibility of further interest rate rises following the hawkish intervention by the Bank of Japan. Germany’s Commerzbank gained 7.1%, and Deutsche Bank climbed 4.3%; Italy’s UniCredit was 2.8% higher, while Spain’s Santander gained 2.5%, BBVA added 2.4%, and Unicaja jumped 6.1%.

North America

American stock indexes gyrated, and bond yields rose, after the Bank of Japan spooked investors by lifting the cap on a benchmark rate, moving a step further away from history’s most ultra relaxed monetary policies.

The S&P 500 slipped before climbing 0.3% at the end of the trading day on Tuesday. The tech-heavy Nasdaq Composite added 0.2% and the Dow Jones Industrial Average ticked up 0.5%. The indexes fell for the fourth straight day on Monday.

Among the 11 sectors in the S&P. 500, only consumer discretionary and consumer staples were down in early afternoon trading.

The cull out of Japan surprised markets and came in one of the final meetings of Gov. Haruhiko Kuroda after 10 years at the post. Central banks the world over have already begun tightening monetary policy to quell inflation and to catch up with the US dollar, with Japan one of the exceptions.

While the BOJ’s interest rate increase is relatively minor relative to the rate increases in the United States, analysts and investors fear that this signals the end of the yearslong era of easy money across the board.

Reduced monetary ease both in the US and other markets has been an important preoccupation of investors. Recent data have indicated the Fed’s rate increases are having the desired effect of moderating inflation, but officials have indicated they plan to press on with rate increases and maintain rates at higher levels than many investors had expected.

Yields increased on US Treasurys, which have mostly moved lower in recent weeks as inflation has suggested it might be easing. The 10-year note's yield /quotes/zigman/4868283 is up to 3.687% from 3.581% late Monday. Mr. Brill forecast that in 2023 investors will look to US fixed income for its higher yields, but surging yields abroad could cause foreign bond buyers to look elsewhere.

“The always concern is what happens if local yields become competitive with U.S. yields, and today’s the first step towards that?” Matt Brill, head of North America investment grade at Invesco Fixed Income, said. “The markets are asking, where does it end?”

In the stock market, shares of Tesla were 5.2 percent lower, allowing its market value to slip below that of Johnson & Johnson for the first time since late 2020. A number of analysts have lowered their price targets on Tesla stock in recent days.

Tech stocks, such as those of Tesla, are especially sensitive to interest rates and have been some of the biggest contributors to the S&P 500’s almost 20% decline this year as rates climb.

Next year “could be the beginning of a bottoming process, so that’s what we’re hoping for,” said Katie Stockton, founder of Fairlead Strategies and portfolio manager of the Fairlead Tactical Sector exchange-traded fund. Defensive stocks, which have been the market leaders this year, aren’t likely to be popular with investors in the new year, Ms. Stockton said.