US pre-open: Stocks seen higher after BoJ as focus shifts to Fed announcement

US futures pointed to a firmer open on Wall Street after the Bank of Japan tweaked its monetary policy framework, as investors awaited the latest rate announcement from the Federal Reserve.

At 1025 BST, Dow Jones Industrial Average futures were up 0.3%, S&P 500 futures were 0.4% higher and Nasdaq futures were up 0.5%.

Meanwhile, oil prices were in the black after data from the American Petroleum Institute on Tuesday showed a 7.5m barrel draw to 507.2m in US crude inventories in the latest week. Analysts had been expecting inventories to increase by 2.3m barrels. West Texas Intermediate was up 0.3% to $43.44 a barrel while Brent crude was 1.8% higher at $46.72.

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 Bank of Japan 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.

As far as the Fed is concerned, analysts are expecting US interest rates to remain on hold, with a hike in December now seen as more likely.

David Morrison, senior market strategist at SpreadCo, said: “There’s very little likelihood that the central bank will tighten monetary policy. Not only has recent US economic data been patchy of late, but the Fed has done nothing to prepare the markets for a rate hike.

“If it announced an increase in its fed funds rate then we can expect market turmoil. While the Fed knows it has to push rates up from current levels, it won’t risk cratering the bond and equity markets with a shock move ahead of the Presidential Election.”

In corporate news, General Mills and CarMax were among the companies slated to report earnings before the opening bell, with Bed, Bath and Beyond scheduled to release its numbers after the close.

Microsoft Corp was higher in pre-market trade after saying late on Tuesday that it will bump its its quarterly dividend and that it has approved share buyback programme.

The Fed's rate announcement is at 1900 BST.