Yen drops, stocks mixed as Japan hikes rates at last

The yen weakened and Tokyo stocks rose Tuesday after the Bank of Japan hiked interest rates for the first time in 17 years owing to elevated inflation.

With Japan's annual inflation rate consistently holding above the BoJ's two-percent target and recent wage talks ending with bumper rises, the BoJ finally felt confident to pivot from a policy that has been an outlier in the global economy as other countries ramped up borrowing costs.

The Japanese currency fell more than one percent against the dollar to 150.69 yen at 0955 GMT after the central bank also poured cold water on expectations of more hikes, sending the Tokyo stock market racing higher.

"The yen has weakened across the board while the Nikkei has surged higher. This is likely due in part to cautious signals from the BoJ which warned that the hike is unlikely to be followed quickly by further increases," said TickMill analyst James Harte.

Following months of speculation, the BoJ changed its policy rate range from minus 0.1 percent to between zero and 0.1 percent, in its first hike since 2007.

Several major central banks this week hold gatherings that will decide on interest rates, including the United States, Britain and Australia.

Markets are waiting to see when they will start cutting borrowing costs after several hikes to combat soaring inflation.

The BoJ also said it would scrap its programme of allowing government bond yields to move within a tight range -- known as yield curve control -- and stop buying risk assets such as exchange-traded funds and real estate investment trusts.

There is concern that tighter Japanese policy could disrupt financial markets as investors switch their cash to Japan in search of better returns as other central banks prepare to begin cutting.

 Eve of Fed decision

Other stock markets were mixed on the eve of the Federal Reserve's latest rate decision.

There were gains in Sydney, Singapore, Jakarta, Bangkok and Wellington, but Hong Kong and Shanghai fell, while Seoul, Mumbai, Taipei and Manila also registered losses.

In Europe, London nudged lower while Frankfurt and Paris rose by 0.4 percent and 0.3 percent respectively.

While the Fed is forecast to keep rates on hold at a two-decade high, it will release its "dot plot" outlook for the rest of the year.

Analysts see three cuts this year, half the amount predicted fairly recently, as US inflation remains high.

June is pencilled in as the first likely reduction.

Key figures around 1045 GMT 

Dollar/yen: UP at 150.58 yen from 149.16 yen on Monday

Euro/dollar: DOWN at $1.0841 from $1.0873

Pound/dollar: DOWN at $1.2673 from $1.2727

Euro/pound: UP at 85.54 pence from 85.42 pence

Tokyo - Nikkei 225: UP 0.7 percent at 40,003.60 (close)

Hong Kong - Hang Seng Index: DOWN 1.2 percent at 16,529.48 (close)

Shanghai - Composite: DOWN 0.7 percent at 3,062.76 (close)

London - FTSE 100: DOWN 0.1 percent at 7,717.23 points

Paris - CAC 40: UP 0.4 percent at 8,180.31

Frankfurt - DAX: UP 0.3 percent at 17,993.75

EURO STOXX 50: UP 0.3 percent at 4,999.53

New York - Dow: UP 0.2 percent at 38,790.43 (close)

West Texas Intermediate: DOWN 0.2 percent at $82.53 per barrel

Brent North Sea Crude: DOWN 0.4 percent at $86.54 per barrel.