London open: Stocks edge higher after BoJ, ahead of Fed

Stocks in London edged higher in early trade after the Bank of Japan stood pat on rates but tweaked its policy framework, as investors looked ahead to a policy announcement from the Federal Reserve.

At 0830 BST, the FTSE 100 was up 0.6% to 6,872.57.

The Bank of Japan kept its negative interest rate of -0.1% and its quantitative easing programme at Y80trn a year. However, it set a new target for longer-term interest rates as part of its fight against deflation, as it moved away from policies focusing on expansion of the monetary base towards influencing the shape of the government bond yield.

Following a comprehensive review of its policies, the BoJ decided it would aim to keep the yield on the benchmark 10-year debt issued by Tokyo at about 0%, as it continued to aim at lifting consumer price inflation back up to the 2.0% monetary policy target.

In addition, it said its target for repurchasing Y80trn in government bonds per year would now be flexible and would be allowed to fluctuate in the short-term as a result of policymakers' new focus on bond yields.

The Fed, meanwhile, is widely expected to keep rates unchanged.

CMC Markets’ Michael Hewson said: “This week’s watching and waiting game looks set to come to a conclusion later today when the US Federal Reserve monetary policy committee winds up its latest two day meeting with a decision on whether to raise interest rates for the second time in nine months.

“If the narrative of the last few weeks has been any sort of guide it is clear that the FOMC is split down the middle as to whether rates should be raised, and it is highly likely that whatever decision is arrived at there will probably be some dissent.”

Since Fed governor Lael Brainard’s dovish speech earlier this month, some US brokers have pulled back from calling for a September rate hike. Unlike her more hawkish peers Fed Governor Daniel Tarullo and Boston Fed President Eric Rosengren, Brainard took the view that rates should be raised only very gradually.

In corporate news, Saga was in the black after its first-half profits were short of management's full year target but the interim dividend was upped by almost a quarter to compensate.

Interserve was up after announcing that its construction joint venture Khansaheb has been awarded an £81m contract by Middle East developer Majid Al Futtaim, to expand and upgrade the City Centre Ajman mall in the United Arab Emirates.

Smirnoff, Guinness and Baileys producer Diageo was a little weaker after saying it is set to deliver a “stronger” performance for the 2017 financial year.

Majestic Wine shares tumbled after the company said it expects 2017 profits to be below current market expectations due to lower-than-expected sales in its commercial business and investment in the US division of Naked Wines.

On the data front, UK public sector net borrowing figures are at 0930 BST. In the US, the FOMC rate announcement is at 1900 BST.