The Bank of Japan announced today a purchase programme that immediately boosted stocks but sent the yen down.
The programme, announced by Haruhiko Kuroda, governor of the Bank of Japan, lays out the BoJ’s intention to buy more shares of exchange-traded funds and real estate investment trusts, and to extend the duration of its portfolio of Japanese government bonds.
The purpose: to fuel inflation by enlarging the monetary base to 80 trillion yen ($724 billion), up from 60 to 70 trillion yen.
Alongside this QQE announcement came Japan’s Statistics Bureau figures on key economic data, all indicating contraction: household spending down from -4.7% to -5.6%, unemployment up from 3.5% to 3.6%, and Tokyo’s core CPI figure down from 2.6% to 2.5%.
It was the high sales tax and lack of confidence from the BoJ to meet the two year target of 2% inflation that determined the stimulus announced today as an addition to the 19 month asset-purchase plan that has failed so far to lift exports. The immediate effect was to boost the Nikkei 225 Stock Average up to 2009 levels, +4.83% by 7.47am GMT. The JPY however dropped against USD.
[XE currency charts]
The BoJ’s statement realised the risks coming, saying,
“If the current downward pressure on prices remains, albeit in the short term, there is a risk that conversion of deflationary mindset, which has so far been progressing steadily, might be delayed. To pre-empt manifestation of such risk and to maintain the improving momentum of expectation formation, the Bank judged it appropriate to expand the quantitative and qualitative monetary easing (QQE).”
The BoJ also gave expectations for the future, saying,
“The Bank will continue with the QQE, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner.”
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Please note that there is a bank holiday in Japan on Monday 3 November