MOSCOW, October 31 (RIA Novosti) — The Bank of Japan took unexpected action to further stimulate its economy after inflation significantly slowed in September by boosting both its government bonds holding and exchange traded fund purchases, triggering a rally at the markets and yen depreciation.
The Bank of Japan (BOJ) has undertaken decisive measures to ease monetary policy by increasing its accumulated volume of government bonds by 80 trln yen ($723 bn) and mounting volumes of investment assets (ETFs) acquisition to 3 trln yen ($27 bn). The Japanese Government Pension Investment Fund (GPIF) has already announced plans to sell more shares based on the news announced by the national central bank. As a result, Japanese stock markets grew significantly on the expectations of a revived growth due to increased stimulus. Positive news from across the ocean also contributed to the market’s rise as the US economy has expanded at its fastest pace since 2003.
“It had become increasingly apparent that what the BOJ was doing wasn’t enough and they needed to do more and it’s always been a question of when they would do that. It’s an excellent outcome,” Shane Oliver of Australia’s AMP Capital Investors Ltd. said, as quoted by Bloomberg.
The BOJ decision surprised the market as the regulator’s monetary policy had already been aggressive, and a 60%-increase of stimulus caused brief euphoria. The nation’s main stock index jumped nearly 5%, while the yen slid 1.9% against the dollar to a near six-year low of 111.06 JPY to 1 USD.
"It was a total surprise that the BOJ eased further at this time given that BOJ executives have not voiced such pessimistic views lately. The move was apparently made in response to underlying weakness in prices," Junko Nishioka of RBS Securities Japan said, as quoted by Reuters.
The yen depreciation will contribute to the international competitiveness of Japan’s exports and increased import prices on the domestic market, which in turn will heat inflation. The BOJ inflation target is 2%, while in September, according to a BOJ report published last night, inflation had slowed to 1%. Therefore, today’s easing measures might be effective in overcoming the negative effects of low inflation and spur economic growth.
The BOJ also decreased its growth forecast for the current year to 0.5% from the previous estimate of 1% due to weak consumer demand caused in part by April’s sales tax hike. Also, in September Japan’s unemployment rose slightly with the number of jobs decreasing for the first time in three years, which might be another impetus for further BOJ monetary easing. In addition, household spending in September fell more than expected due to low inflation.
BOJ governor Haruhiko Kuroda announced today that further stimulus is still possible though it may not be necessary as today’s measures might prove to be sufficient.