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 ($58bn), up from the current 3.3 trillion yen.
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The Bank of Japan (BOJ) on Friday expanded its purchases of exchange-traded funds (ETF) and doubled the size of a US dollar lending program, while refraining from boosting the pace of government bond purchases that have formed the main part of its monetary stimulus. It initially rose to 105.75 yen right after the BOJ’s announcement but later tumbled to as low as 102.705 yen.
At 3:48pm (AEST) the Nikkei was up 0.5 per cent.
The BOJ’s choices risk disappointing investors who expected more-aggressive action to counter faltering inflation and a stronger currency.
Prime Minister Shinzo Abe is preparing a 28 trillion yen stimulus package in a bid to reboot Abenomics.
He also said that the cabinet will approve a fresh economic stimulus package next Tuesday, ahead of the reshuffle.
The central bank, however, did say it will be conducting a thorough assessment of the effects of negative interest rates and its massive asset-buying programme at its next policy meeting in September, suggesting that a major overhaul of its stimulus measures may be forthcoming. 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.
Kuroda explained that the central bank’s action will “help prevent these uncertainties from leading to a deterioration in business confidence and consumer sentiment [in Japan]”.
Hiroaki Muto, an economist at Tokai Tokyo Research Centre said, “Abe’s announcement is a squeeze play on the BOJ”.
“Much of the temporary weakening against the United States dollars we have seen since the beginning of July will be reversed”. I suspect it could be.
Another raft of tepid economic data released on Friday underlined the economy’s need for a jolt.
Separate data report presented that the Asian nation’s retail sales lost a yearly rate of 1.4% in June, compared to predictions of a 1.5% decline. The price bounced off after touching the support level at 103.00.
Daiwa Securities strategist Takuya Takahashi said the ETF buying expansion was not enough by itself. Instead, the yen has strengthened against the dollar for the year.
The Bank of Japan ended a policy meeting Friday by announcing it will expand purchases of assets from financial institutions to help inject more cash into the world’s third-largest economy and pursue its 2 per cent inflation target.
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“The BOJ has reached a point where it may have to lower JGB purchases soon, so additional easing may not have a great impact”.
