A look at the day ahead in U.S. and global markets from Mike

Dolan

If just two years ago, you'd imagined the day the Bank of

Japan ended its negative interest rate era, you'd probably not

have put the yen near 34-year lows through 150 per dollar or the

Nikkei stock index within 2% of record highs.

Yet, here they are - and Bank of Japan policy rates are

positive again for the first time since 2016 after the BOJ

delivered its first rate hike in 17 years at Tuesday's meeting.

And it went big in its dismantling of its extraordinarily

easy money regime - removing formal bond yield caps and

purchases of stock funds.

Of course the move had been telegraphed for weeks, if not

months, and only the timing was at issue.

And perhaps the market's eventual takeaway from the meeting

was an emphasis on policy remaining "accommodative" with rates

stuck around zero as a fragile economic recovery retains large

rate gaps with other G7 nations.

The BOJ said it will continue its JGB purchases at broadly

the same amount as before - which pushed yields lower on the day

- even though it will scale back the maximum limit of its

purchases.

Still the prospect of further hikes were left on the table.

"If trend inflation heightens a bit more, that may lead to an

increase in short-term rates," said BOJ Governor Kazuo Ueda

said, without elaborating on the likely pace and timing of

further moves.

And business welcomed the move, with the chair of Japan's

biggest business lobby Keidanren describing it as "the

appropriate policy decision at the appropriate time".

But with the long-awaited hike now out of the way,

dollar/yen surged to 150.62 - within 1% of 2022's peaks.

And the Nikkei gained 0.6% - about 1% from its record

high set earlier in the month.

In the background, Australia's dollar weakened and

shares there ended higher as the Australian central bank

signalled greater confidence in inflation returning to its

target range after leaving policy rates unchanged at 12-year

highs of 4.35%.

And of course all now spins into the Federal Reserve's

two-day meeting, which kicks off later on Tuesday.

The rates and currency market mood is hawkish going into the

Fed meeting, although there was some relief on Treasury yields

early Tuesday and spiky oil prices ebbed a bit.

Thanks largely to the yen swoon, the dollar was

higher across the board, hitting its highest in almost three

weeks.

But despite the cloudy U.S. interest rate picture, the buzz

about artificial intelligence kept stock indexes buoyed.

Google's parent Alphabet jumped on a media report

that Apple ( AAPL ) is in talks to build Google's Gemini AI

engine into the iPhone.

Nvidia ( NVDA ) shares added almost 1% as it kicked off its

annual developer conference as investors waited for new chip

announcements from Chief Executive Jensen Huang.

But Super Micro Computer ( SMCI ), which joined the S&P 500

on Monday, gave up earlier gains to close down 6.4%, making it

the biggest percentage decliner on Monday. The stock, which has

rallied furiously recently on bets it would benefit from AI, is

still up more than 252% for the year-to-date.

And in a good day for mega caps, even Tesla climbed

6%, leading S&P 500 percentage gains, after the electric

carmaker said it would soon increase the price of its Model Y

EVs in parts of Europe.

But the tech and megacap flurry disguised a bad session for

small caps, with the Russell 2000 ending down 0.7%.

Key diary items that may provide direction to U.S. markets later

on Tuesday:

- U.S. Feb housing starts, Jan TIC data on foreign holding of

Treasuries; Canada Feb consumer price data

- U.S. Federal Reserve's Federal Open Market Committee starts

two-day policy meeting, decision Wednesday

- US Treasury auctions 20-year bonds, 12 month bills

(Editing by Bernadette Baum)