BOJ eases policy by doubling ETF buying, underwhelms expectations

Asian markets were mixed early Friday as cautious investors await the Bank of Japan's decision on monetary stimulus.

The British pound also traded weaker, down 0.21 per cent to US$1.3188 on Thursday morning while the euro weakened, down 0.06 per cent at 1.10825. "The main focus for gold is the uncertainty surrounding the Fed", said ING Bank senior strategist Hamza Khan, adding that today's modest action by the Bank of Japan will be followed by investors in relation to the impact on the Federal Reserve's decision to lift rates.

After plunging below ¥104 in early trading, possibly on an erroneous order, the dollar bounced back to around ¥105.

JAPAN-ECONOMY: Japan's central bank ended a policy meeting Friday by announcing it will expand purchases of exchange traded funds from financial institutions to help inject more cash into the world's third-largest economy and pursue its 2 percent inflation target.

But the BOJ maintained its base money target at 80 trillion yen, as well as keeping to the existing pace of purchasing other assets including Japanese government bonds.

The dollar last traded at 103.31 yen, down 1.9 percent, having hit a 2-1/2 week low of 102.705 yen after the announcement of the BOJ's decision.

The ETF purchase increase was expected by the market but the inclusion of no other key measures, such as additional Japanese government bond purchases, a rate cut or negative rate loan support program, was seen as a disappointment by some analysts.

"The government is now studying and arranging comprehensive and drastic economic measures", Aso said. The bank is being pushed to work with the government to encourage growth at a time when Prime Minister Shinzo Abe is likely to announce a 28 trillion yen or $266 billion stimulus package in the coming week.

"That the BOJ did not increase bond purchases is significant and will disappoint those looking for coordination of monetary and fiscal easing", said Adam Cole, head of currency strategy at RBC Capital Markets. "But investors were disappointed with the result, they think it is not enough to prop up the economy of Japan", she said in an interview. It looked set for a 1.3 percent weekly drop, but a 5.4 percent monthly gain.

The Bank of Japan introduced a negative interest rate policy in January this year.

The 0.5 percent fall in the core consumer price index, which includes oil products but excludes fresh food prices, was lower than economists' median estimate for a 0.4 percent annual fall. The TOPIX index of all First Section issues closed up 15.74 points, or 1.20 percent, at 1,322.74, after falling 14.67 points the previous day. Brent crude, used to price global oils, fell 56 cents to $42.68 in London.

  • Joey Payne