According to a Bloomberg survey, thirty-two of 41 analysts forecast that the central bank will expand its record stimulus programme at the meeting that ends Friday – the highest percentage of respondents in the poll in more than three years.
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The limited policy action from the BOJ move underscores a perception that it is running into operational challenges as the Kuroda era of massive stimulus wears on.
It described the move to boost its purchases of ETFs as an “enhancement of monetary easing” which was needed to “prevent these uncertainties from leading to a deterioration in business confidence and consumer sentiment”.
The stronger yen also weighted on the dollar index .DXY , which slipped 0.4 percent to 96.364, putting it on track for a slide of 0.6 percent for the week, but a gain of 0.2 percent for the month.
By coordinating its action with the government’s big fiscal spending package, the BOJ likely aimed to maximize the effect of its measures on the world’s third-biggest economy, which is struggling to escape decades of deflation.
“The BOJ seems to have had no choice but to ease policy this time as markets had factored in its fresh stimulus measures significantly”.
At 3:48pm (AEST) the Nikkei was up 0.5 per cent. It appeared to be following the government’s lead in going ahead with additional easing.
The BOJ already is injecting about 80 trillion yen ($760 billion) a year into the economy through asset purchases, mainly of Japanese government bonds.
But it made a decision to leave unchanged the negative interest rate policy of imposing a 0.1-percent penalty on some of the reserves held by financial institutions.
“The BoJ decision failed to meet the market’s high expectations”, Khoon Goh, head of Asia research at Australia & New Zealand Banking Group in Singapore, told Bloomberg News. At one point, Japan’s currency blew into the 102 range against the dollar. However, it rebounded because the BoJ managed to appease the markets with the increase in ETF purchases.
Most economists had predicted more from the BOJ, given diminishing inflation expectations and weak growth.
Since the BOJ’s negative interest-rate policy took effect in February, bank executives have raised skepticism about the effectiveness of the policy, saying it isn’t lifting loan appetite from corporate clients.
Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley, offered a similar view.
Indeed, many commentators had expected a combination of Japanese government bond (JGB) and ETF purchases.
Helicopter money, market jargon for the government using the central bank to directly fund stimulus spending, had been mooted in the market before the meeting. ESc1 just before the first estimate of Q2 USA gross domestic product is released.
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The governor reiterated his previous comment that direct debt underwriting is forbidden.
