By Caroline Valetkevitch

NEW YORK (Reuters) – U.S. 10-year Treasury yields fell to a four-month low on Wednesday as data showed U.S. retail sales declined more than expected in December, while the yen was weaker against the dollar in the wake of the Bank of Japan’s decision to maintain ultra-low interest rates.

Wall Street stocks ended lower following profit-taking after recent gains, with hawkish comments from Federal Reserve officials adding to the day’s bearishness. A global stocks index also fell.

Some investors said the drop in U.S. retail sales, together with subsiding inflation, could encourage the Fed to further scale back the pace of its interest rate increases next month.

A separate report showed U.S. producer prices also fell more than expected in December.

Even as inflation was showing signs of cooling, Fed policymakers reiterated their support for hiking the U.S. central bank’s target interest rate above 5%.

The U.S. central bank is expected to raise rates by 25 basis points when it concludes its two-day meeting on Feb. 1.

Earlier, the Bank of Japan maintained its ultra-easy policy, including a bond yield cap, defying market expectations it would phase out its massive stimulus program because of increasing inflation pressures.

The decision caused the yen to fall, with investors unwinding bets based on expectations the central bank would overhaul its yield control policy.

In late-afternoon U.S. trading, the dollar was up 0.6% against the yen. The U.S. dollar index was nearly flat.

On Wall Street, the Dow Jones Industrial Average fell 613.89 points, or 1.81%, to 33,296.96, the S&P 500 lost 62.11 points, or 1.56%, to 3,928.86 and the Nasdaq Composite dropped 138.10 points, or 1.24%, to 10,957.01.

“The market was overbought,” said Sam Stovall, chief investment strategist at CFRA research. He said some investors took profits in areas of recent strong gains.

The pan-European STOXX 600 index rose 0.23% and MSCI’s gauge of stocks across the globe shed 0.71%.

In other currencies, the Australian dollar fell 0.7% to US$0.6936, after hitting its highest level since August last year. The New Zealand dollar traded flat on the day at US$0.6430.

Benchmark 10-year notes fell as low as 3.372%, the lowest since Sept. 13. Two-year yields reached 4.072%, the lowest since Oct. 4. The yield spread between two-year and 10-year notes was last a minus 70 basis points.

In the energy market, oil prices fell as worries about a possible U.S. recession outweighed optimism over China’s lifting of COVID-19 curbs.

Brent futures fell 94 cents, or 1.1%, to settle at $84.98 a barrel. U.S. West Texas Intermediate (WTI) crude fell 70 cents, or 0.9%, to settle at 79.48.

Bitcoin was last down 1.8%.

(Reporting by Caroline Valetkevitch in New York; Additional reporting by Sinead Carew in New York and Nell Mackenzie and Alun John in London; Editing by Sharon Singleton and Matthew Lewis)

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