ANALYST VIEWPOINT: “The Japanese stock market in particular is likely to be nervous about failure to act and any indication that the BOJ’s stimulus policy is coming to an end”, said Ric Spooner, chief market analyst at CMC Markets.
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The yen soared against the dollar on Friday after a round of modest monetary policy easing from the Bank of Japan disappointed investors who had been hoping for at least a hint of more radical stimulus.
The Bank of Japan (BOJ) on Friday expanded its purchases of exchange-traded funds (ETF) and doubled the size of a USA dollar lending program, while refraining from boosting the pace of government bond purchases that have formed the main part of its monetary stimulus. Stock markets around the world edged lower Thursday, July 28, 2016, as investors digested an upbeat Fed assessment of the US economy that raised the prospect of further rate hikes, while anticipating more stimulus from Japan.
The recent vote by Britain to leave the European Union has added to the uncertainties clouding the global outlook at a time when Japan’s recovery remains in question.
The government recently downgraded its growth forecast for 2016 to 0.9 percent from 1.7 percent, and speculation had mounted over the possibility for a so-called “helicopter money” approach that would entail more direct infusions of money into the economy.
“The government is now studying and arranging comprehensive and drastic economic measures”, Aso said.
In a surprise decision, the BOJ pledged to keep interest rates steady at the close of its two-day meeting on Friday. One fifth of that is earmarked for companies that meet benchmarks for investing in staffing and equipment, it said in a statement.
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. It will also double the size of a USA dollar lending program. It also left untouched the minus 0.1 percent rate for a portion of commercial banks’ reserves.
The BOJ doubled its purchases of exchange-traded funds, yielding to pressure from the government and financial markets for bolder action.
KEEPING SCORE: Japan’s Nikkei 225 was down 0.3 percent at 16, 411.39.
CURRENCIES: In currencies, the dollar fell to 103.73 yen after closing at 104.79 yen on Thursday.
Burdened by the yen fall, the dollar was half a percent lower against a basket of its peers at 96.289 having hit set a 2-week low at 96.216.
US crude futures fell to as low as $40.95 per barrel CLc1 and were last down 0.2 percent at $41.06.
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The Nikkei 225 stock index dropped almost 2 percent but later regained lost ground, closing 0.6 percent higher at 16,569.27 on Friday. But tightness in the job market has not spilled into significant increases in wages that might help spur more consumer demand and encourage businesses to investment in the short of “virtuous cycle” Abe has been promising since he took office in late 2012.
