Bank of Japan announced an expansion of its quantitative and qualitative easing program, shocking the currency markets and bolstering stocks.
The Bank of Japan said Friday it will increase asset purchases and extend the average remaining maturity of Japanese government bond purchases to an annual pace of about ¥80 trillion ($720 billion), an addition of about ¥30 trillion.
The Bank of Japan also announced a ¥10 trillion to ¥20 trillion increase in its monetary base target growth, to ¥80 trillion per year.
“With a view to encouraging a decline in interest rates across the entire yield curve, the bank will conduct purchases in a flexible manner in accordance with financial market conditions,” said a statement on the bank’s website. “The average remaining maturity of the bank’s JGB purchases will be extended to about seven to 10 years.” That is an extension of about three years at most, compared with past maturities.
The bank will also purchase exchange-traded funds and Japan real estate investment trusts, increasing amounts outstanding of ETFs at an annual pace of about ¥3 trillion — triple its past rates — and tripling REIT purchases to about ¥90 billion.
The Nikkei 225 index rose almost 5% after the announcement. The yen fell almost 2% against the dollar, to a six-year low of ¥111.5 to $1.
The announcement has been met with mixed reviews.
“This is a last-ditched attempt by (Haruhiko) Kuroda (the governor of the Bank of Japan) to get money back into circulation and the markets,” said Simon Somerville, portfolio manager of Jupiter Asset Management’s Japan Income Fund, in an interview. “It is unprecedented. If Kuroda succeeds, this is a 12-month to two-year impact on the markets. We are really excited by the move, but scared too. It is quite scary the number of bonds they are buying, but the reason is clearly correct. If this doesn’t work, I don’t think (the bank) has any ammunition left.”
However, others were more cautious. “Overnight, Asia markets performed extremely well, and (the U.K.) woke up to liquid assets looking strong, with equities up, and credit indices in a bit but lagging,” said Gina Germano, managing partner at Goldbridge Capital Partners, in an interview.
“The general feeling is that this is a big move, but it is a more measured reaction than it has been in the past. That points to this overall skepticism (in the markets) that policy is no longer going to have the impact it had in the last two years. I wouldn’t be surprised if we see a more muted tone restored on Monday.”
