Japan’s central bank has opted for a modest e.
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With underlying inflation set to moderate further towards the end of the year, the Bank will still have to provide more easing before long, Marcel Thieliant, an economist at Capital Economics, said.
Before the BOJ’s decision, many investors warned of a big chance of disappointment because markets have long expected more stimulus, making it hard for BOJ Governor Haruhiko Kuroda to spring a surprise. “I want to hear what BOJ Governor Haruhiko Kuroda has to say, but increasing ETF purchases makes no contribution to achieving 2-percent inflation”, Norio Miyagawa, senior economist at Mizuho Securities, told the Reuters news agency. Negative rates are meant to encourage lending to people and businesses by effectively charging banks to keep excess reserves in the BoJ’s vaults.
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.
Failing to ease more now has bolstered expectations that Japan will need to act more aggressively later or risk a more significant slowdown in their real economy.
Finance Minister Taro Aso welcomed the step and pledged to work with the central bank in shoring up growth.
“We are bullish on the PGMs (platinum group metals) fundamentally but we are unclear as to whether or not fundamental motivations have been driving the current PGM rally”, HSBC analyst James Steel said in a note. One fifth of that is earmarked for companies that meet benchmarks for investing in staffing and equipment, it said in a statement.
The broader Topix rose 1.2 percent to 1,322.74, with 3.19 billion shares changing hands, while turnover was 3.3 trillion yen, both the highest level since June 24.
It has left the amount of Japanese government bonds static at an annual rate of 80 trillion yen and left rates unchanged at -0.1%.
The dollar’s fall against the yen, its steepest in a month and fourth steepest this year, pulled it down against other currencies, putting the trade-weighted dollar exchange rate on course for its biggest weekly fall in two months.
The U.S. currency cut its losses on buybacks to stand at ¥103.60-64 at 5 p.m., but was still down from ¥104.68-69 at the same time Thursday.
A separate report showed that Japan’s retail sales declined by an annualized rate of 1.4% in June, compared to expectations for a 1.5% drop. Year-over-year, growth was up 1.6%.
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The BOJ justified the boost to ETF purchases as aimed at preventing external headwinds, such as weak emerging market demand and Britain’s vote to leave the European Union, from hurting business and household confidence. We think those concerns are unwarranted.
