Instant View: BOJ expands fund supply, hold off on bolder steps

TOKYO (BestGrowthStock) – The Bank of Japan expanded its fund supply tool at an emergency meeting, saving more aggressive steps for when there is clearer evidence of a slowdown in a fragile economy hit by a strong yen.

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KEY POINTS:

— As widely expected, the BOJ maintained its policy rate at 0.1 percent, by a unanimous vote.

— It increased the volume of money available to banks under its fixed-rate fund supply operation to 30 trillion yen ($351 billion) from 20 trillion yen.

— It also put in place a six-month fund operation in addition to the three-month loan programme already in place.

— Of the 30 trillion yen, 10 trillion yen will be the six-month fund operation, the BOJ said.

— The decision on expanding its funding supply tool was by an 8-1 vote, with Miyako Suda dissenting.

— BOJ Governor Masaaki Shirakawa will hold a news conference starting at 2:30 p.m. (0530 GMT)

COMMENTARY: MASARU HAMASAKI, SENIOR STRATEGIST, TOYOTA ASSET MANAGEMENT, TOKYO

“The Bank of Japan’s measures were not surprising. They were in line with our expectations. The yen could regain strength again, and gains in the Nikkei could slow as the market factors in the BOJ’s measures.

“It’s doubtful these measures by the BOJ will be able to halt the yen’s appreciation. We need to see signs of the U.S. economy picking up in order for the yen’s strength to be capped.”

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MARI IWASHITA, CHIEF MARKET ECONOMIST, NIKKO CORDIAL, TOKYO

“The BOJ has highlighted its stance toward cooperation with the government. The outcome was mostly in line with expectations, although its decision to put in place a six-month fund operation may eventually begin nudging longer-term money market rates lower.

“The focus is now on Governor Shirakawa’s news conference and if he hints toward more easing in the near future.”

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SELENA LING, TREASURY ECONOMIST, OCBC BANK, SINGAPORE

“I think intervention is still an open-ended question. Conventional wisdom is that unilateral action by BOJ would be futile. So far it is mainly rhetoric rather than money on the table on the issue of the yen’s strength.

“Increasing the size of its lending facility by 10 trillion yen to 30 trillion yen was anticipated. This is targeted more at boosting domestic liquidity and aiding the domestic economy. The two (intervention and further stimulus measures) don’t necessarily have to go hand-in-hand in my opinion.

“The market reaction suggests an interpretation that if they are willing to do more on the liquidity front then they don’t really want to act on the fx front itself.”

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ADRIAN FOSTER, HEAD OF FINANCIAL MARKETS RESEARCH, RABOBANK INTERNATIONAL, HONG KONG

“I see (these steps) as more of the same, and as such they don’t seem to add anything new. The market is clearly disappointed with the result. The governor rushes back from the U.S. and delivers — more of the same.”

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TAKESHI MINAMI, CHIEF ECONOMIST, NORINCHUKIN RESEARCH INSTITUTE, TOKYO

“These steps are not enough to reverse the yen’s strength. There’s a possibility that the market will press the BOJ to do more.

“U.S. jobs data is scheduled later this week and if the data indicates a deterioration in the U.S. economy the financial markets may become volatile and the yen may test a 15-year high vs the dollar again.

“If the BOJ is to implement additional steps in its next monetary meeting, it should increase bond purchases, as it has already been doing to affect short-term rates.”

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HIDEYUKI ISHIGURO, STRATEGIST, OKASAN SECURITIES, TOKYO

“There have been expectations that some sort of easing would take place ever since the yen gained so sharply last week, and what they did was basically in line with the various things that have already been reported as possibilities.

“I’m not sure I’d go so far as to call it disappointment, but people are now going to use the chance to take profits given how far the Nikkei rose today — up almost 300 at one point.”

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ROBERT RENNIE, CURRENCY STRATEGIST, WESTPAC, SYDNEY

“The big issue for me in Japan is years of unchecked deflation. The BOJ’s balance sheet is simply going nowhere. It sits currently at 117 trillion yen. That is essentially unchanged from where it was in December 2009 and December 2008. In fact, it is about 4 percent smaller than it was in both those months.

“Even as the BOJ has increased JGBs held, its balance sheet has simply gone sideways. If the BOJ really wanted to do something about the strength of the yen, they should have done something about deflationary pressures. The current policy of doing nothing simply isn’t working. So for me the announcements so far are very disappointing.

“The BOJ should have increased rinban operations (BOJ buying of JGBs outright from the market) at a minimum. In increasing the credit programme by 10 trillion yen, the BOJ has done the absolute minimum and this is very disappointing to me.”

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AYAKO SERA, MARKET STRATEGIST, SUMITOMO TRUST AND BANKING, TOKYO

“The combination of an increased volume in the fund supply operation and an extended period for the loan programme will have a slightly surprising accommodative impact.

“The content is very positive in that the BOJ has extended the period of an accommodative stance to six months.

“There isn’t likely to be a major impact on markets, but they will now face a period lacking fresh expectations for monetary policy.

“It is really now the government’s turn to offer effective economic steps that complement the BOJ’s emergency measures.”

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ANDY JI, CURRENCY STRATEGIST, ROYAL BANK OF SCOTLAND, SINGAPORE:

“The BOJ decision is out with tweaks as expected on the liquidity operation but no increase in bond purchases. So it’s rather half-hearted and still resisting government pressure.

“Nothing has fundamentally changed — overnight rates might get lower, which could support dollar/yen on rate differentials, but again this is nothing of a new development.

“The intervention ball is back to the government and MOF has to make a call on that.”

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MASAMICHI ADACHI, SENIOR ECONOMIST, JPMORGAN SECURITIES, TOKYO

“Some market players who had been expecting more surprises from the BOJ are disappointed as their announcements were exactly in line with market expectations. The yen could gain a bit more and Japanese share prices will cut gains.

“Although the yen weakened after the BOJ’s previous emergency meeting late last year, what’s different now is that the U.S. economy is looking very weak.

“These days the yen’s exchange rate has been essentially driven by U.S. factors, not Japanese factors. So we could well see the dollar plunging again if the upcoming U.S. payroll data is soft.”

MARKET REACTION:

— The yen climbed back to its highs of the day after the decision, pulling the Nikkei share average off its peaks and helping JGB futures bounce back from an early plunge. For yen updates click; for prices click

— JGB 10-year futures fell 0.35 point to 142.20 after BOJ, a touch lower than the midday close of 142.22. They were still above the day’s low of 141.60. For JGB updates, click, for prices click

— Stocks pared their gains on disappointment over the BOJ move, which market players said was in line with expectations and somewhat half-hearted.

LINK

For text of the BOJ’s announcement go to:

http://www.boj.or.jp/en/index.htm

BACKGROUND

— Japanese policymakers have tried to talk down the yen and signaled the possibility of intervening in the market after the Japanese currency hit a 15-year high against the dollar last week.

— The government has also heightened pressure on the BOJ to do its part to support economic growth and help curb rises in the yen, which hurt exports and could delay Japan’s exit from deflation.

— The BOJ has been considering easing policy and lining up its options, but had wanted to wait until its next regular rate review on September 6-7 for clearer evidence of the harm the yen’s rise was inflicting on business sentiment.

— The BOJ last eased monetary policy in March, when it doubled the size of its fixed-rate fund supply tool to 20 trillion yen ($234.3 billion).

— It is the first emergency meeting by the BOJ since May, when the central bank decided to resume a dollar fund supply operation in the wake of the Greek debt crisis.

(Reporting by Leika Kihara)

Instant View: BOJ expands fund supply, hold off on bolder steps