The yen fell the most in two months after the Bank of Japan made only minor changes to its policy settings, disappointing some in the market who had expected more. 

The currency dropped back past 150 per dollar following the decision that saw the central bank continue to commit to yield curve control, saying one per cent is a reference point. In European markets, stocks rose on the back of earnings beats from Anheuser-Busch InBev NV and Stellantis NV. 

Meanwhile, S&P 500 futures advanced, putting equities on track to extend gains after Monday's rally that sent the index up 1.2 per cent. Bonds climbed after the US Treasury reduced its estimate for federal borrowing for the current quarter, citing stronger-than-expected revenue.

The BOJ's shift is being closely watched by investors because of its tight control of the bond market since it introduced yield-curve control in 2016. The central bank said on Tuesday that it will take a more flexible approach to controlling yields on 10-year government debt, marking a shift from a previous pledge to conduct daily bond buying operations at one per cent. 

“This is the first critical test of whether Japanese officials care about the speed of JPY depreciation or specific levels,” said Simon Harvey, head of fx analysis at Monex Europe. “Thankfully for them lower Treasury yields are delaying any urgency for an answer, but any unexpected hawkish comments from Chair Powell tomorrow or a larger issuance in longer-date Treasuries could force the issue as soon as tomorrow.”

The prospect of a weaker yen and negative interest rates means Japanese equities are in line for more gains, according to Charles-Henry Monchau, chief investment officer at Bank Syz. The Nikkei 225 added 0.5 per cent on Tuesday, bringing its year-to-date rally to 18 per cent. 

“It looks like loose monetary policy is likely to stay in place for some time to come,” he wrote in a note. “They are now in a corner and cannot afford to allow long-term bond yields to rise much further.” 

The gains in Japanese stocks stand in stark contrast to the rest of the global equity market. The S&P 500 is on track for a 2.8 per cent retreat in October, a third monthly loss. 

Elsewhere, oil prices rebounded after a steep drop yesterday as investors tracked developments in the Middle East. Israel struck more targets in Lebanon and Syria overnight, while stepping up its ground operations in Gaza. West Texas Intermediate rose to near US$83 a barrel.  

Key events this week:

• Eurozone CPI, GDP, Tuesday
• U.S. Conference Board consumer confidence, employment cost index, Tuesday
• China Caixin manufacturing PMI, Wednesday
• U.K. S&P Global / CIPS UK Manufacturing PMI, Wednesday
• U.S. construction spending, ISM Manufacturing, job openings, light vehicle sales, Wednesday
• All Saints holiday in much of Europe, Wednesday
• Treasury quarterly refunding announcement, Wednesday
• Federal Reserve interest rate decision. Fed Chair Jerome Powell holds news conference, Wednesday
• Eurozone S&P Global Eurozone Manufacturing PMI, Thursday
• Bank of England interest rate decision. Governor Andrew Bailey holds news conference, Thursday
• U.S. factory orders, initial jobless claims, productivity, Thursday
• Apple earnings, Thursday
• China Caixin services PMI, Friday
• Eurozone unemployment, Friday
• U.S. unemployment, nonfarm payrolls, Friday
• Canada employment report, Friday

Here are some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 0.7 per cent as of 10 a.m. London time
• S&P 500 futures rose 0.2 per cent
• Nasdaq 100 futures were little changed
• Futures on the Dow Jones Industrial Average rose 0.3 per cent
• The MSCI Asia Pacific Index fell 0.6 per cent
• The MSCI Emerging Markets Index fell 0.6 per cent

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.4 per cent to US$1.0659
• The Japanese yen fell 1 per cent to 150.63 per dollar
• The offshore yuan was little changed at 7.3307 per dollar
• The British pound rose 0.1 per cent to US$1.2188

Cryptocurrencies

• Bitcoin was little changed at US$34,431.86
• Ether rose 0.1 per cent to US$1,803.54

Bonds

• The yield on 10-year Treasuries declined seven basis points to 4.83 per cent
• Germany's 10-year yield declined three basis points to 2.79 per cent
• Britain's 10-year yield declined seven basis points to 4.49 per cent

Commodities

• Brent crude rose 0.3 per cent to US$88.13 a barrel
• Spot gold was little changed