Decisions to keep the policy interest rate unchanged and forgo raising the target for the monetary base followed increasing expressions of concern by banks and bond market participants about the impact of the BOJ’s massive easing.
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While the Fed and the BoJ are moving in opposite directions – the USA central bank raised interest rates in December andis now debating when to undertake a second rate hikewhile the BoJ is implementing a programme of aggressive quantitative easing (QE) – their policies have failed to live up to the expectations of investors.
Tokyo’s Nikkei share index initially jumped, but soon slumped as the currency rose, before rising again. The S&P 500 .SPX slid 3.51 points, or 0.16 percent, to 2,163.07 and the Nasdaq Composite .IXIC added 1.62 points, or 0.03 percent, to 5,141.43.
News agency Jiji reported that Prime Minister Shinzo Abe had revealed a 28 trillion yen ($265 billion) injection, which Reuters estimated at 6 percent of Japan’s economy. Capital Economics’ Marcel Thieliant argued in a note that “today’s [fiscal stimulus] announcement reduces the chances of further monetary stimulus being introduced this week but we still think it more likely than not”.
Abe said the details of the package will be compiled next week.
The Fed’s policy board said the U.S. economy was improving and left open the possibility of a rate hike as soon as September.
The bank had acted “in order to prevent these uncertainties from leading to a deterioration in business confidence and consumer sentiment”.
“Is this guidance that we may actually see negative rates being reversed?” “It’s obvious that there has been a mini credit crunch in Japan and the banks have underperformed”.
The rate plan has been unpopular among Japanese banks, however, as it encourages them to loan out money to people and businesses by effectively charging them to keep excess reserves in the BoJ’s vaults.
ANALYST’S TAKE: “The Fed will in most likelihood opt for a cautious stance while assessing Brexit implications on the US economy”, Mizuho Bank wrote in a daily commentary.
Fanuc Corp soared 2.2 percent to more than a three-month high of 18,050 yen after the industrial robot maker hiked its full-year operating profit forecast to 134.1 billion yen from 117.3 billion yen for the year ending March 2017.
Japan has been able to dodge a recession in the first three months of the year; but the latest figures paint a worrying picture, with households spending falling and inflation dropping for a third straight month.
Investment bank Societe Generale had warned that a disappointing response from the BoJ would put the Yen under pressure.
Most economists had predicted more from the BOJ, given diminishing inflation expectations and weak growth.
Daiwa Securities strategist Takuya Takahashi said the ETF buying expansion was not enough by itself.
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The yen rose 2% against the USA dollar, which will frustrate government attempts to devalue the stubbornly high currency. Some have said that if BOJ runs out of easing options, it could turn to extraordinary measures such as helicopter money, but the governor of BOJ last week discounted helicopter money policy.
