The increase in purchases of ETFs was also only modest, and the bank overall maintained its base money target at 80 trillion yen ($775 billion) as well as the pace of purchases for other assets including Japanese government bonds. Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities, said that in addition to scaling back its JGB purchases, the BOJ may also “freeze” negative rates, which are deeply unpopular with banks and the public.
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Meanwhile, in its outlook report published after the meeting, the BOJ said the domestic economy is ecpected to grow 1.0 percent in fiscal 2016 and 1.3 percent in fiscal 2017. “However, with underlying inflation set to moderate further towards the end of the year, we think that the Bank will still have to provide more easing before long”.
The status quo in rates and the bond-buying programme caused some disappointment in the market.
“Markets may be disappointed that the Bank of Japan didn’t deliver more stimulus overnight – it’s probably just waiting until September, like the European Central Bank – but financials are clearly relieved that it didn’t take interest rates further negative”, said Michael Van Dulken, head of research at Accendo Markets.
The central bank’s measures – which it called “enhancement of monetary easing” – is needed to prevent “these uncertainties from leading to a deterioration in business confidence and consumer sentiment, as well as to ensure smooth funding in foreign currencies by Japanese firms and financial instiutions”.
Financial markets gyrated following the decision.
The Philippine Stock Exchange index (PSEi) declined 61.87 points, or 0.77 percent, to 7,963.11 from previous day’s 8,024.98 finish.
Elsewhere in markets, oil prices fell to fresh three-month lows, with U.S. benchmark now down more than 20 percent from this year’s peak on growing worries that the world might be pumping more crude than needed. But “increasing purchases of exchange-traded funds” as announced Friday “could help weaken the yen if stocks rally”, according to Miwa.
USA crude futures fell to as low as $40.75 per barrelCLc1 and were last down 0.9 percent at $40.77.
In Europe, the FTSEurofirst 300 index of pan-regional stocks closed up 0.68 per cent at 1,347.43. The premier’s 28 trillion yen ($265.30 billion) stimulus package, which exceeds initial estimates of around 20 trillion yen, includes 13 trillion yen in fiscal measures that are likely to include spending by national and local governments, as well as loan programs.
Kuroda said the bank was conducting the review not because its policy tools have been exhausted but to come up with better ways to achieve its 2 per cent target – keeping alive expectations of further monetary easing.
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Brent crude oil futures settled down 24 USA cents to $US42.46 per barrel.
