Asia report: Japan's big surprise boosts regional markets

The Bank of Japan's big Friday surprise had investors in Tokyo in a frenzy, sending markets back and forth as investors tried to make sense of the new negative interest rate policy.

At close, the Nikkei Stock Average was up 2.8% at 17,518.3. The yen was up 1.7% to JPY120.65 against the US dollar by the end of Asian trading, having earlier reached its weakest against the greenback for the year so far.

Japan's central bank policy was a surprise to investors who were previously cautious that an extension of the controversial easing policy might be on its way.

Instead, they were met with the news that the official interest rate would be cut from the previous 0.1%, to -0.1%. The rate is what the Bank of Japan pays on cash being deposited there in excess of the legally required minimum reserves.

Officials said the negative rates were brought in to "pre-empt the manifestation of risk and to maintain momentum to achieve the price stability target of 2%".

"We will cut the interest rate further into negative territory if judged as necessary", the bank continued in a statement released after their two-day policy camp.

The Japanese domestic economy had been suffering the effects of extremely low inflation, a slow-to-start domestic economy and the effects of the volatile global markets.

Yet the move "caught a lot of people by surprise", according to Aberdeen Asset Management Japanese equities head Kwok Chern-Yeh.

Banking and property shares in Tokyo went bouncing in different directions on the news, with traders looking for signs investors would take their money out of the banks and into areas like real estate.

The worst performers of the day included Shinsei Bank, down 11%, and Mitsubishi Financial Group, down 2.8%. Sumimoto Realty & Development was up 11.9% and Mitsubishi Estate Co. was up 10.3%.

In corporate news, Honda Motor reported a 22.3% fall in operating profits due to higher quality-related costs - including the costs of airbag recalls - and a negative currency impact.

Japan's third-largest automaker posted a net profit of JPY124.1bn (£717m) in the October-December quarter, down 18.5% from JPY152.3bn a year ago.

Across the Yellow Sea, the Chinese markets were buoyed by the confidence in the region, with the Shanghai Composite Index up 3.09% to 2,737.60. The benchmark did manage to avoid hitting the much-feared 25% monthly loss mark, but it did end up losing 23% in January - the biggest loss since the global financial crisis, when it lost 25% in October 2008.

Chinese traders were also floating on the eye-watering levels of cash injections made by Beijing this week. A final CNY 100bn (£10.59bn) cash pump took the total amount invested by the politburo this week to CNY 690bn.

Many locals were starting to withdraw cash to cover the week-long Chinese New Year celebrations, which were due to begin on 7 February. The holiday usually brings a general slowdown in activity for the mainland's economy.

Other markets in the region were also riding the Japanese wave. with the Kospi in Seoul rising 0.27% and the Hang Seng Index in Hong Kong gaining 2.54%.

The news from Japan came during late trading in Australasia, which saw the S&P/ASX 200 jump 0.59% and the S&P/NZX 50 climb 0.3%.

In currencies, the US dollar was 0.06% stronger against the Aussie, at AUD 1.4125. The greenback lost 0.14% against the Kiwi, and was at NZD 1.5410.

Malaysia's ringgit soared almost 2% against the US dollar during the day, to a three-month high, after the country's embattled government released its revised budget and the Prime Minister, Najob Razak, made comments that the currency was undervalued.

Oil kept climbing during Asian trading, after Thursday's revelations from producers that actual volumes may be lower than predicted. London Brent was recently at $33.58 per barrel, while West Texas Intermediate was at $33.27.