Japan was ripped of their additional stimulus

August 1, 2016

The Bank of Japan is full of surprises as today the meeting was held for additional stimulus. The meeting was held, but as the Monetary Statement released then BoJ left the Japanese economy without any additional stimulus what people hoped for. The local equities started to tumble as the Yen momentarily flew sky-high as the expectations were high for the monetary easing.

The policy rate was left untouched at a -0.10%. The Central Bank did not change the Monetary Base as it still stands at 80T Yen, meanwhile doubling ETF purchases.  Nobody said a single word about the alleged “helicopter money” or about the stimulus which circled around the buyout of the governments bonds.

As a good amount of market players pinned their faith on rate cuts or an extension of fiscal stimulus, then they got a huge backlash as the BOJ stood pat. USD/JPY sank about 2 percent to 102.80, because of the policy announcement, but later stabilized at 103.50 level. Nikkei-225 gained a 0.6 percent to 16.569,27 after dipping 1.8 percent. Biggest gains were seen on the banking shares, as Mitsubishi UFJ Financial Group rose 7.7%, and Mizuho Financial Group added 5.7%. The broad index Topix advanced by 1.2% closing at 1.322,74 points.

The BoJ leaders suspect an improvement in the country’s economic growth for the next fiscal year. However, they lowered the inflation forecast, according to a quarterly macroeconomic forecast of the bank.

The median forecast of economic growth for the 2016 year (ending in March 31, 2017) was reduced to 1% from the expected 1.2% in April, for 2017 they said that the improvement would be 1.3% from the speculated 0.1%. Two years from now on the year 2018 they see a drop to 0,9% from the previous 1%.

Such a significant increase in the forecast for 2017 is due to coordinated decision of the Central Bank and the Government of Japan. With the expanding the economic stimulus program. In particular, the Bank of Japan announced plans to increase the volume of purchases of securities ETFs to 6 trillion yen ($ 57.8 billion) from the previously announced 3.3 trillion yen.

The forecast for inflation (consumer prices excluding fresh food) for the current financial year has deteriorated immensely – with the median of 0.5% to a 0.1%, largely due to the uncertainty of the Yen.

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