FTSE 100 nudges higher after BoJ tightening boosts UK banks

London’s FTSE 100 nudged higher today after banks were boosted by yet more signals from the global central banking community that policy will keep tightening next year.

The capital’s premier index added 0.13 per cent to close at 7,370.62 points, while the domestically-focused mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, dropped 0.56 per cent to 18,544.76 points.

FTSE 100 inched higher today

The Bank of Japan shocked markets today by lifting the amount it is willing to allow Japanese bond yields to rise to 0.5 per cent from 0.25 per cent.

The move marks the first tightening in policy from the central bank in years and a step away from maintaining an ultra-stimulative setting despite the rest of the world’s top monetary authorities hiking interest rates steeply in response to high inflation.

Yields on government bonds around the world shot up on the news, lifting sentiment toward London’s biggest lenders on bets that the likes of the Bank of England and Federal Reserve will keep raising rates.

Banks benefit from higher borrowing costs as they allow them to charge more for loans.

Britain’s biggest bank HSBC climbed to near the top of the FTSE 100, gaining 1.42 per cent. NatWest and Lloyds Bank followed close behind.

The BoJ’ move sets in “motion [a] train of events that makes the [it] much less of a global outlier, and points to the prospect of further tightening in rates heading into 2023, with the higher yields helping to lift banking stocks like HSBC, Lloyds, and NatWest,” Michael Hewson, chief market analyst at CMC Markets UK, said.

The yen, Japan’s currency, which slumped sharply in 2022 due to the BoJ trailing its counterparts, gained ground on the US dollar.

The pound was broadly flat against the greenback.

Oil prices inched around 0.5 per cent lower.