Yesterday the Bank of Japan (BOJ) fired up the Asian session volatility with its latest policy decisions. What the heck did the markets react to anyway?!
1. Bullish tone intact
In a press conference BOJ head honcho Kuroda expressed his optimism over the economy’s “moderate recovery,” saying that overseas demand has picked up and that rising income is fueling consumption. This was welcome news to investors who are worrying over Japan’s recent disappointments in trade deficit and GDP numbers as well as the looming sales-tax hike in April.
2. No changes to interest rate and monthly asset purchases
As widely expected, the BOJ decided to keep its interest rates steady at record lows. It will also continue to expand its monetary base by 60-70 trillion by buying Japanese government bonds (JGB) worth 50 trillion JPY, exchange-traded funds (ETFs) worth 1 trillion JPY, and real estate investment trusts (J-REITs) worth 30 billion JPY annually. Last but not the least; it will maintain an outstanding corporate debt worth 5.4 trillion JPY.
3. More powerful lending facility
What caught the investors’ attention was the BOJ’s decision to boost its bank lending programs. First, it extended the deadline of three special loan facilities (due to expire by March) by one year. Then, the central bank DOUBLED the budget of two of its facilities from 3.5 trillion JPY to 7.0 trillion JPY.
The first program, the Stimulating Bank Lending Facility, encourages banks to funnel money to the economy (think of the BOE’s Funding for Lending scheme) while the second program, the Growth Supporting Funding Facility, supports longer-term, promising business investments.
The BOJ’s optimistic outlook and additional stimulus were welcome surprises for the yen bears. The yen dropped across the board with USD/JPY, EUR/JPY, GBP/JPY, and even AUD/JPY popping up by at least 100 pips three hours after the release.
The question is, will the BOJ’s new plans make any dent on the economy? Some analysts don’t think so. Heck, even Kuroda himself has admitted that the move was more of a message to banks that they’re supporting more lending. Of the combined 21.5 trillion JPY currently allotted for the three facilities, only less than 9 trillion yen had been tapped so far. That’s below the BOJ’s 13 trillion JPY target!
Whether or not the BOJ’s latest moves have a lasting impact on the economy, we can’t deny that a lot of market players still expect Kuroda and his team to eventually add more stimulus.
How about you? Do you think that the BOJ’s latest bank lending moves lessen the need to provide more stimulus in the future? Let us know what you think through the poll below!