NEW DELHI: Most of the Asian stock markets, excluding Japan’s Nikkei, traded in the red after the Bank of Japan (BOJ) pledged to increase purchases of equity-traded funds (ETF) but kept interest rates steady at the end of its two-day police review on Friday.
BoJ said it would continue with its quantitative and qualitative monetary easing (QQE) with a negative interest rate, as Japan’s economy remained firm on the path of a moderate expansion. The bank aims to achieve a price stability target of 2 per cent.
BoJ said it will take additional easing measures, if necessary, to achieve the price stability target in terms of three dimensions – quantity, quality and interest rates.
“BoJ has practically done nothing. It has just walked up to the edge of the cliff, but it not prepared to jump or it is certainly not prepared to jump into any helicopter. But it is ultimately going to be forced to jump,” Michael Every, Rabobank, said in an interview with ETNow.
“The market reaction to the policy move is disappointing, and the yen will grow much stronger, which will be negative for equities. We have to see what dinosaur pace they move at. Ultimately, they will have to do something radical,” he added.
Most of the Asian markets traded in the red; Shanghai Composite down 0.07 per cent and Hang Seng 0.82 per cent. Nikkei was trading with a positive bias.
Macro data still suggests sluggishness in the Japanese economy. Japan’s core consumer price index fell 0.5 per cent in June from a year earlier, compared with economists’ median estimate for a 0.4 per cent annual gain.
“In the past, we have seen many instances where BoJ tried and did all it could, but still it was not able to produce the desired result. From the Indian market’s perspective, we would not get very excited about the possible upside prospects due to this move alone,” Pankaj Sharma, Head of Equities at Equirus Securities, told ETMarkets.com.
Here are the top five takeaways from the BoJ announcement:
Increase in ETF purchases: The Bank of Japan said it would purchase exchange-traded funds (ETFs) so that their outstanding will increase at an annual pace of 6 trillion yen, which is almost double the pace of about 3.3 trillion yen before.
Lending to firms in US dollar: BoJ said it would increase the size of its lending programme to support growth in US dollar loans to $24 billion, which is about 2.5 trillion yen. Under this programme, the bank will provide its US dollar funds for four years through financial institutions to support Japanese firms’ overseas activities.
Expansion in monetary base: The bank decided, by an 8-1 majority vote, to conduct money market operations so that the monetary base increases at an annual pace of about 80 trillion yen. The bank will purchase Japanese government bonds so that its outstanding amount increases at an annual pace of 80 trillion yen.
Interest rates: The bank decided to continue using negative interest rates of minus 0.1 per cent to policy rate balances in the current accounts held by financial institutions at the bank.
Impact on yen: The Japanese yen surged against the dollar, trading at 103.12 after the BoJ decision, compared with a session high of 105.33 before the announcement.