Yen jumps before Bank of Japan meeting, oil mixed

A buoyant yen and US oil prices at three-month lows kept stock markets on the defensive on Tuesday as investors awaited central bank meetings this week that will unveil new stimulus in Japan and may provide clues on US interest rates.
US equity markets closed mixed while stocks in Europe traded slightly higher as gains in major healthcare and consumer goods stocks propped up European equities to offset persistent concerns over the region's banking system.

The yen hit two-week highs against the euro and more than one-week highs against the dollar as traders dialled back expectations of how much new stimulus authorities will inject into Japan's ailing economy at the end of the week.

Most economists surveyed by Reuters expect the Bank of Japan to expand its asset purchases and cut rates further below zero at a two-day meeting that ends on Friday.

Comments by Japan's finance minister, Taro Aso, raised concerns that the government will not work as closely with the BOJ to implement new stimulus as investors had hoped.

"We are also seeing not much pressure from the Japanese government on the BOJ to ease. All this is helping the yen," said Yujiro Goto, currency strategist at Nomura.

The yen gained 1.08 percent against the dollar to 104.62. The euro fell 1.17 percent to 114.92 yen.

MSCI's all-country world stock index traded slightly higher, up 0.15 percent, while the pan-European FTSEurofirst 300 index also rose 0.15 percent to close at 1,346.96.

Andrew Wilkinson, chief market strategist at Interactive Brokers LLC in Greenwich, Connecticut, said he doubted an eventual rate hike by the US Federal Reserve would halt the upward trend on Wall Street.

"It doesn't matter what you throw at the market. The bears have been mauled," Wilkinson said. "It doesn't pay not to be invested."

The Dow Jones industrial average closed down 19.31 points, or 0.1 percent, at 18,473.75. The S&P 500 added 0.7 point, or 0.03 percent, to 2,169.18 and the Nasdaq Composite rose 12.42 points, or 0.24 percent, to 5,110.05.

The Fed is expected to leave interest rates unchanged when it concludes its two-day meeting on Wednesday. Investors are looking for any signs that the US central bank might be more likely to hike rates in coming months.

Data showed US consumer confidence holding steady in July while sales of new single-family homes hit their highest level in nearly 8-1/2 years in June, suggesting sustained momentum in the economy.

Other data showed moderate gains in house prices in May, which should support consumer spending and keep home purchasing affordable, especially for first-time buyers who have started venturing into the housing market.

The US central bank is widely expected to leave its target on policy rates at 0.25 percent to 0.50 percent this week due to global risks. But traders seemed wary of signals the Fed would consider raising rates by year-end on signs the economic expansion remains on track.

US Treasury yields fell and followed a decline in European government debt, whose yields held in negative territory due to purchases by the European Central Bank.

The benchmark 10-year Treasury yield <US10YT=RR> was up 3 basis points at 1.5628 percent.

US crude settled down 21 cents at USD42.92 a barrel, the first time WTI has traded below USD43 a barrel since April 26. Brent rose 15 cents to settle higher at USD44.87 a barrel.