Europe midday: Stocks in the black as investors digest BOJ move

European stocks were in the black but off earlier highs as investors reacted to the Bank of Japan's surprise decision to adopt negative interest rates for the first time ever, as it looks to drive inflation to 2%.

At midday, the benchmark Stoxx Europe 600 index was up 0.6%, Germany’s DAX was up 0.4% and France’s CAC 40 was 0.6% higher.

The BoJ said on Friday that it will apply a negative 0.1% interest rate to excess reserves financial institutions place at the bank with effect from 16 February.

The bank voted five to four in favour of the decision, which it attributed to declining oil prices and the slowdown in China.

At the same time, the Bank left its bond-buying programme and exchange-traded funds unchanged.

"Recently, however, global financial markets have been volatile against the backdrop of the further decline in crude oil prices and uncertainty such as over future developments in emerging and commodity-exporting economies, particularly the Chinese economy," the BOJ said in a statement.

"For these reasons, there is an increasing risk that an improvement in the business confidence of Japanese firms and conversion of the deflationary mindset might be delayed and that the underlying trend in inflation might be negatively affected."

The BoJ added that it would cut interest rates further into negative territory if this was deemed necessary.

“I think the action taken by the BoJ is the correct response given the extremely low levels of inflation and growth in the country, the latest decline in commodity prices and the added deflationary pressures that the stronger yen could bring,” said Craig Erlam, senior market analyst at Oanda.

Markets in Asia reacted positively to the news, with Japan’s Nikkei ending 2.8% firmer, the Hang Seng up 2.5% and China’s Shanghai Composite up 3.1%.

Oil prices slipped back into the red, with West Texas Intermediate down 0.1% at $33.20 a barrel and Brent crude 0.5% lower at $33.71.

In corporate news, Sky was on the front foot after its first half revenues met market expectations and the broadcaster announced the appointment of James Murdoch as chairman.

British Land was also in the black after it signed another tenant to the London ‘Cheesegrater’.

Spanish wind turbine maker Gamesa Corp Tecnologica rocketed following a report that Siemens was interested in bidding for the company.

Shares in French outdoor advertising company JCDecaux rallied after well-received fourth quarter numbers.

Banca Monte dei Paschi di Siena was higher after the bank’s chief executive told an Italian newspaper a tie-up with UBI Banca might make sense.

On the downside, Yara was weaker after the fertiliser producer’s fourth-quarter results missed analysts’ expectations.

On the macroeconomic front, flash figures from Eurostat showed inflation in the Eurozone picked up in January.

Harmonised consumer prices were up an annual 0.4% compared with a 0.2% rise in December, bang in line with economists’ expectations.

Meanwhile, core inflation – excluding items such as energy and food – increased to 1% from 0.9% the previous month, compared with expectations for 0.9%.

Still to come, investors will be looking to the first release of fourth quarter US GDP at 1330 GMT.