BoJ Decision Disappoints, Yen Surges On No FX Intervention Announcement
The BoJ just released a decision to extend the 3 month lending program to 6 months, to expand the 6 month fixed rate facility to 30 trillion yen from 20 trillion, extended the maturity of QE, and kept the benchmark rate at 0.1%: in essence a nothingburger extension of QE, which has done miracles for the past 20 years. The key item, however, is that there was no direct mention of FX intervention by the BoJ, which was the silver bullet many had hoped for. As a result, the Yen is currently surging.
USDJPY below. Futures soon to follow:
More from Bloomberg:
The Bank of Japan expanded a bank- loan program, stepping up its monetary stimulus for the first time since March after the economy’s recovery weakened and the government pressured the central bank to act.
The BOJ will boost the amount of funds in the facility by 10 trillion yen ($116 billion) to a total of 30 trillion, the bank said in a statement after an emergency meeting in Tokyo. Governor Masaaki Shirakawa led the gathering after cutting short a U.S. trip in the wake of increasing calls from politicians for the BOJ to help stem a surge in the yen to a 15-year high.
Today’s decision reflects rising concern about growth in advanced economies that sent global stocks tumbling in the past three weeks. Federal Reserve Chairman Ben S. Bernanke three days ago signaled a willingness to implement further steps if needed to avert another U.S. recession, in a speech that triggered a gain in stocks and the dollar.
“The BOJ’s additional loosening alone may not be sufficient to reverse the market’s trend, but it could make it easier for the Japanese market to ride the waves of a global market recovery,” Takuji Aida, senior Japan economist at UBS AG in Tokyo, said before the announcement.
The bank-loan program that the BOJ is expanding was set up in early December in response to a November climb in the yen to the highest level since 1995. That mark was breached this month, when the currency hit 83.60 per dollar.
The yen recouped some of its losses after the announcement, trading at 85.55 as of 12:19 p.m. in Tokyo today. Any moves in the currency market today may be exaggerated by a U.K. holiday, closing the world’s biggest market for foreign-exchange trading.
Reacting to Yen
The extra 10 trillion yen unveiled today will be offered in six-month credit. The term for the other 20 trillion yen remains at three months. BOJ policy makers doubled the size of the bank- loan fund to 20 trillion yen in March. That decision also followed political pressure, with then Finance Minister Naoto Kan urging the central bank to adopt an inflation target to help end declines in consumer prices.
Kan, who is now prime minister and battling to keep the post following a challenge to the leadership of the ruling party, last week said “we are ready when necessary to take bold measures” in the currency market. Speaking to reporters Aug. 27 after meeting with business executives, he said he expected the Bank of Japan to take action “swiftly.”
In addition to the central bank’s move, Kan’s aides are compiling a stimulus package to buttress growth as consumer prices keep falling and prospects for export growth are hampered by slowing expansions in overseas economies. Kan will meet with Shirakawa today and then decide on the outline of his government’s economic stimulus plan, Chief Cabinet Secretary Yoshito Sengoku said at a regular press conference in Tokyo.