San Francisco Frontiers - Markets hit by recession fears, yen drops after BoJ decision

Gone is the optimism that flowed through trading floors immediately after the Federal Reserve on Wednesday announced its biggest rate increase for 28 years as global finance chiefs followed suit, putting a squeeze on dealers' ability to borrow.

Markets have been tumbling for months as traders contemplate the end of the era of cheap cash that sent valuations to record or multi-year highs, with inflation at levels not seen in decades owing to a surge in energy and food prices.

The Bank of England on Thursday lifted rates for a fifth straight time to their highest since 2009 during the financial crisis, just as the Swiss central bank shocked markets by unveiling its own half-point increase -- its first rise in 15 years.

The European Central Bank has also signalled it will announce a hike soon.

Equities plunged as expectations for recession continue to rise. The Dow ended below 30,000 for the first time in more than a year and the S&P 500 is now at its lowest since December 2020.

But with rates rising everywhere else, the Bank of Japan on Friday refused to move away from its ultra-loose monetary policy, despite inflation spiking and the yen sitting around a 24-year low.

Officials in Tokyo insist that low rates are still needed to nurture a struggling economy, though in a move away from its regular remarks in the post-meeting statement, the bank did say it "was necessary to pay due attention to developments in financial and foreign exchange markets".

The yen tumbled to 134.63 against the dollar, from 133.37 before the decision, though it recouped some of those losses after the statement. Still, it is wallowing around a 24-year low and has lost around 13 percent this year.

"The BoJ added language about foreign exchange markets following the earlier statement from the three-party gathering. That tells me they are getting more cautious and don't want the yen to tumble to 140," Mari Iwashita, of Daiwa Securities, said.

Ahead of the meeting, Stephen Innes at SPI Asset Management wrote in a note: "No central bankers worth their weight would put inflation-fighting credentials on the line and import higher energy inflation via a weaker currency."

He added that "in what is a highly ominous signal for stock market investors, given the broader index's sensitivity to rising bond yields... the global race to hike rates is nowhere near the finishing line".

Still, in reaction to the decision he said there was a sense of relief among traders as "as the last thing the market needed was another blowdown equity valve to give way".

Equity markets in Tokyo, Sydney, Seoul, Singapore, Wellington, Taipei, Mumbai, Manila and Jakarta were all in the red, though Hong Kong was slightly higher after steep losses on Thursday.

London, Paris and Frankfurt edged up in the morning session.

OANDA's Jeffrey Halley had a warning for investors looking to pick up bargains.

"Even the most ardent buy-the-dipper in the equity space is starting to realise inflation is a threat, with central bank banks prepared to hike the world into a slowdown and possible recession to get on top of it," he said in a note.

- Key figures at around 0810 GMT -

Tokyo - Nikkei 225: DOWN 1.8 percent at 25,963.00 (close)

Hong Kong - Hang Seng Index: UP 1.1 percent at 21,075.00 (close)

Shanghai - Composite: UP 1.0 percent at 3,316.79 (close)

London - FTSE 100: UP 0.4 percent at 7,075.65

Dollar/yen: UP at 134.33 yen from 132.14 yen late Thursday

Euro/dollar: DOWN at $1.0513 from $1.0550

Pound/dollar: DOWN at $1.2298 from $1.2350

Euro/pound: UP at 85.50 pence from 85.40 pence

West Texas Intermediate: UP 0.7 percent at $118.42 per barrel

Brent North Sea crude: UP 0.7 percent at $120.63 per barrel

New York - Dow: DOWN 2.4 percent at 29,927.07 (close)

-- Bloomberg News contributed to this story --

Q.Nelson--SFF