Yen falls, shares rise on stimulus
THE BANK of Japan (BoJ) eased monetary policy yesterday by boosting its asset-buying programme, as prospects of a near-term recovery in the world’s third-largest economy faded due to weakening exports and a prolonged slowdown in Chinese growth.
The decision came hard on the heels of major quantitative easing announced by the US Federal Reserve last week, and amid worries that a territorial dispute with China, Japan’s biggest trading partner, would damage exports even more.
However, BoJ governor Masaaki Shirakawa stressed that the move was prompted by recent disappointing data, not the Fed’s action, while the antiJapanese protests in China played no part in the decision to ease.
“Overseas economies are slowing more than we anticipated, which is why we downgraded Japan’s economic view,” Shirakawa told a news conference after the decision. “Japan’s economic recovery could be delayed by about half a year.”
The BoJ increased its asset buying and loan programme, currently its key monetary easing tool, by ¥10 trillion (R1 trillion) – double the usual amount – to ¥80 trillion, with the increase earmarked for purchases of government bonds and treasury discount bills.
Standing at over $1 trillion (R8.2 trillion), the total stimulus is now equivalent to nearly a fifth of Japan’s economy.
The stimulus was bigger than expected and came a month earlier than many market players had forecast.
In its statement announcing the decision, the BoJ cut its assessment of the economy to SHARES rose yesterday and the yen fell to a one-month low after the Bank of Japan eased monetary policy, the latest central bank to offer stimulus to help the global economy find a firmer footing.
The central bank move lifted Japanese stocks to a fourmonth high and the feel-good factor carried into Europe where London, Paris and Frankfurt all opened higher after falls earlier in the week. The MSCI index of global shares was up 0.25 percent by 4pm in Tokyo.
“It is similar to the Fed effect. Global easing of policy is positive for the market, especially for the equity market, but this is also interesting because it was sort of unexpected,” said Daiwa Securities economist Tobias Blattner.
With riskier assets looking more appealing against the backdrop of central bank stimulus, German bund futures were six ticks lower on the day at 139.19, while yields fell slightly on Italian and Spanish bonds. – Reuters say business activity was pausing and projected growth would stay flat for the time being. It also removed a reference forecasting a moderate economic recovery ahead.
“Japan’s economic indicators have been looking weak, so the BoJ’s move makes sense from that standpoint,” said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management in Tokyo.
A recent slew of weak data, including a slump in exports and factory output, has made Japanese central bankers less convinced that global demand will soon pick up to help a recovery in the export-reliant economy.
The Fed’s pledge last week to buy assets open-endedly to boost job growth, its third round of quantitative easing, had also piled pressure on the Japanese central bank to follow suit with its own steps to support an economy feeling the pinch from a strong yen and the widening fallout from Europe’s debt crisis.
Japanese Finance Minister Jun Azumi welcomed yesterday’s move, saying it was bolder than expected and would have a positive impact on Japan’s economy by stabilising currency moves.
The BoJ is due to release revised long-term growth forecasts next month that are expected to show that a sustained end to deflation remains distant. The dollar jumped to a one-month high of ¥79.23 after the announcement, while the yield on the benchmark 10-year government bond slipped 1.5 basis points to 0.795 percent.
The BoJ expanded its target for purchases of government bonds and treasury discount bills by ¥5 trillion each, and extended the deadline for meeting the new overall target by six months to December 2013.
It also scrapped a rule that limits purchases of government bonds to those yielding 0.1 percent or higher, a move aimed at smoothing fund supply as it faces growing problems force-feeding cash to markets already awash with excess liquidity.
In February the BoJ set a 1 percent inflation target and loosened policy, and followed that up with another easing in April. It had stood pat since then in the hope that exports would have picked up. – Reuters