Europe open: Shares lower as Bank of Japan surprises markets

European shares opened lower on Tuesday following a fall in Asian markets as the Bank of Japan shocked markets and held its benchmark interest rates steady but said it was widening its yield target range.

The pan-European Stoxx 600 index was down 0.92% at 0822 GMT with all major regional bourses lower. The BoJ left its policy balance rate unchanged at -1.0% and the 10-year yield control target unchanged at zero.

However, it also announced a surprise tweak to the yield control curve policy meaning that it will now allow the 10-year bond yield to fluctuate in a range of 0.5% above or below the target of zero, versus 0.25% previously.

The BoJ said in a statement that the change to the yield curve control policy was expected to "enhance the sustainability of monetary easing".

Susannah Streeter, investment and markets analyst at Hargreaves Lansdown, said: "The decision is being read as a sign of testing the water, for a potential withdrawal of the stimulus which has been pumped into the economy to try and prod demand and wake up prices."

"But the Bank is still staying firmly plugged into its bond purchase programme, claiming this is just fine tuning, not the start of a reversal of policy."

Asian stocks were also hit by the World Bank slashing its economic forecast for China, as the Covid pandemic and an ailing property sector hit the world's second largest economy.

Growth forecasts for 2022 were slashed to 2.7% from the 4.3% predicted in June. The forecast for 2023 was almost halved to 4.3% from 8.1%.

In Germany, some brighter news arrived as the producer price index fell 3.9% in November from October, driven largely by a 9.6% monthly decline in energy costs, as natural gas prices fell. It was the second fall in a row, according to the government statistical office Destatis.

On an annual basis, producer price inflation slowed to 28.2% in November, from 34.5% in October.

Reporting by Frank Prenesti for Sharecast.com