A Bloomberg survey conducted from July 15 to 22 found that 32 out of 41 analysts forecast that the BOJ will expand monetary stimulus – the highest percentage of respondents in any poll in over the last three years. “A significant increase in JGB purchases is hard given that the central bank, by its own admission, may run into trouble at some stage obtaining enough bonds to keep the programme going”.
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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.
The move disappointed expectations for a stimulus package of almost 28 trillion yen promised by Prime Minister Shinzo Abe earlier in the week to boost the economy.
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.
“There had been pretty strong hopes for combined measures”.
The yen soared after the BOJ disappointed investors who had expected bolder measures to stimulate growth and raise inflation in Japan’s ailing economy. Additionally, the BOJ will establish a new facility in which it lends Japanese government securities (JGSs) to financial institutions, against their current account balances with the BOJ, in order that these JGSs can be pledged as collateral for the dollar fund supplying initiative.
The BoJ also said it would double the size of a USA dollar lending programme to $24 billion, which supplies greenback-denominated funds to boost Japanese firms’ overseas business activity. Miwa said the gathering could bring major change in how the easing program is structured, such as targeting a particular level of Japanese government bond holdings rather than a pace of buying.
Policymakers at the BoJ kept the main interest rate at -0.1 percent, unchanged since January.
Financial markets seemed underwhelmed by the central bank’s modest action.
The U.S. dollar weakened to 103.55 yen from 104.80 yen late Thursday. “But it is then expected to continue expanding above its potential growth rate and expand moderately as a trend, with rising income driving spending among companies and households”, said Mr Kuroda. It hit a 14-month high on Wednesday.
Unemployment fell to 3.1 percent in June from 3.2 percent for the past several months. After the market’s run-up this month, investors have mostly been in wait-and-see mode this week and the overall market has been relatively quiet.
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Pressure for BoJ action had intensified leading up to Friday’s meeting.
