Governor of the Bank of Japan Haruhiko Kuroda arrives at its headquarters for a policy meeting in Tokyo Friday, July 29, 2016.
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Days like today once again make you question whether the central banks really are reaching the limits of what the markets consider to be effective monetary stimulus tools. FILE – In this November 17, 2015 file photo, a woman takes a look at orange on sale at a shop in Tokyo. Japan reported further signs of weakness in its economy in June, with industrial output and consumer spending falling.
Going by the markets’ reactions, the Bank of Japan threw a spanner into the works with its decision to keep the interest rate unchanged at minus 0.1%.
The Bank of Japan announced an extra dose of monetary stimulus Friday, joining efforts by Prime Minister Shinzo Abe to revitalize the economy.
“We will of course consider what to do in terms of monetary policy steps, based on the outcome of the assessment”.
The decision disappointed markets’ expectations for a stimulus package of nearly 28 trillion yen as pledged by Prime Minister Shinzo Abe this Wednesday to support the economy.
Uncertainty over the path of interest rates has held gold in check since it rallied to more than two-year highs in the wake of Britain’s shock vote last month to leave the European Union.
The central bank’s announcement may have put to an end the possibility of introducing “helicopter money”, or direct central bank underwriting of government debt.
At the two-day rate review that ended on Friday, the BOJ made a decision to increase ETF purchases so its total holdings increase at an annual pace of 6 trillion yen ($58-billion), up from the current 3.3 trillion yen.
The Bank of Japan expanded its purchases of exchange-traded funds and doubled the size of a USA dollar lending program to $24 billion to support Japan companies’ overseas activities.
The BOJ modestly increased purchases of ETFs, but maintained its base money target at 80 trillion yen ($775 billion) and the pace of purchases of other assets, including Japanese government bonds.
Financial markets seemed underwhelmed by the central bank’s modest action.
MSCI’s broadest index of Asia-Pacific shares outside Japan.MIAPJ0000PUS fell 0.64 percent, sliding back from its highest level since August 11 struck earlier in the day. The U.S. dollar weakened to 103.55 yen from 104.80 yen late Thursday.
The benchmark S&P/NZX 50 index rose 41.78 points or 0.57 percent to 7,348.13, with Comvita climbing as much as 4.6 percent to $11.27 while Genesis Energy, Auckland International Airport, New Zealand Oil & Gas and Fletcher Building rose about 2 percent each. The euro edged up 0.2 percent to $1.1097.
Barclays shares were up 5 per cent even though first-half profits fell 21 per cent, and UBS shares were up 3 per cent despite a 14.5 per cent fall in second-quarter profit. The modest monetary expansion by the BOJ was blamed on the decision by the United Kingdom to leave the European Union, increasing the uncertainly that the markets face in the short and longer term.
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“Japan is conducting a powerful mix of flexible fiscal policy and quantitative easing”, Kuroda said.
