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GLOBAL MARKETS-Yen roars, bonds flinch as Japan teases rates shift

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Yen sees biggest jump since January on hints of BoJ shift

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World stocks subdued after recent 10% rise

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Bond market rally stalls due to Japan signals

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Oil prices rebound after 4% dive

By Marc Jones

LONDON, Dec 7 (Reuters) - Japan's long-suppressed yen surged and global bond and stock markets flinched on Thursday, as Tokyo's monetary policymakers gave their clearest hints yet that the exit from ultra-low interest rates was approaching.

The yen rose 1.5% against the dollar, its biggest one-day jump since January, and looked set to extend its post-COVID record of finishing years strongly.

The Nikkei's sharpest drop since late October had ensured Asian stocks finished lower while the FTSE 100, DAX, CAC 40 and S&P 500 futures were all around 0.3% weaker in early European trading.

Bank of Japan Governor Kazuo Ueda had added to speculation about a shift away from negative rates by saying policy management would "become even more challenging from the year-end and heading into next year" and flagged several options of what could come next.

Money markets started pricing in a near 40% chance that the BoJ changes its course at its final meeting of the year on December 19. Japanese government bonds also saw a sharp selloff, with yields on 10-yr JGBs jumping 11.5 basis points.

Societe Generale strategist Kit Juckes said end of year yen rallies had become something of a habit since the pandemic but this move looked different and SocGen sees it as precursor for a strong move up next year. "The yen is cheap as chips and it sounds like they (Japanese policymakers) have moved beyond the fact they are going to have to get rid of negative rates," Juckes said.

"We have call of 130 (yen to the dollar) for the end of next year... as long as you think there is a bull market in U.S. Treasuries you are supposed to think there is a bull market in the yen too."

In recent weeks, the rally in bond markets and fall in global borrowing costs has seen world stocks rise 10% and volatility, as measured by the VIX index, drop to its lowest since before the COVID pandemic.

Thursday's action put a temporary stop to that however.

Traders are turning their focus to the weekly U.S. jobless claims data later in the day, ahead of the non-farm payroll report due on Friday. Economists expect the economy added 180,000 new jobs in November, picking up from 150,000 the previous month.

Data on Wednesday showed a smaller-than-expected rise in private U.S. payrolls in the latest sign that the American labour market is gradually cooling.

OIL SWINGS

The yen's big move knocked the dollar index down 0.3% to under 104. Markets have priced in so many Federal Reserve rate cuts recently that traders feel vulnerable to an upside surprise in U.S. data.

The yield on the benchmark U.S. 10-year Treasury note bounced off a three-month low to 4.1515% although Germany's 10-year bond yield, the benchmark for the euro zone, was barely budged at 2.205% just above a 7-month low.

Sentiment on China was still bearish after Moody's slapped a downgrade warning on China's credit rating and cut outlooks for Hong Kong, Macau and Chinese local government financing vehicles.

Mixed trade data out of China also failed to provide much impetus. November exports rose for the first time in six months while imports unexpectedly shrank, suggesting domestic demand remained weak.

China's blue-chips index ended down 0.2% after hitting a five-year trough earlier in the session. Hong Kong's Hang Seng index fell to a 13-month low.

The main commodity markets remained choppy too. Oil prices steadied after falling nearly 4% on Wednesday - that had been welcome news for those still nervy about inflation although it does not bode well for the health of the globally economy.

Brent crude futures recovered 1% to $75 a barrel while U.S. West Texas Intermediate futures rose 0.6% to $69.85 a barrel. Gold prices also ticked higher to $2,033 per ounce.

(Reporting by Marc Jones; Editing by Emelia Sithole-Matarise)

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