The Bank of Japan late Monday adopted a new, aggressive stance
on inflation and asset purchases aimed at stimulating the economy
following decades of stagnant growth. The BoJ pledged to purchase
unlimited amounts of bonds at a rate of $144.77 billion per month
beginning in 2014 in an attempt to boost inflation to two
The move signals the boldest yet by the BoJ to jump start the
economy following years of slow to no growth but recently
economists and analysts have become optimistic on Japan as the
new, stimulative policies are a much broader and larger attempt
to provide growth. By increasing inflation and devaluing the yen,
the BoJ and other economic authorities in Japan are hoping to
boost exports and overall domestic growth.
However, markets were slightly disappointed by the
announcement as the new measures will not take place until 2014.
The new 2 percent inflation target of the BoJ, although they may
informally attempt to boost inflation in 2013, will not take
place until 2014, and bond purchases will continue but may not
reach the target $144.77 billion per month until 2014. Many
market watchers had been expecting these measures to be
implemented immediately, and markets were disappointed.
The Nikkei 225 Index declined 0.35 percent overnight following
weeks of gains since December on stimulus hopes. However, the
disappointing timing of the stimulus set markets back and could
be a signal of the beginning of a broader pullback in Japanese
equities. The yen has already retraced some of its recent losses
over the past few trading sessions.
The USD/JPY recently traded above 90 but has already retreated
to 88.76. Further, other yen crosses such as the EUR/JPY and
AUD/JPY retraced some gains as the yen strengthened on the
Another disappointment for markets was the lack of increased
easing now. The statement released by the BoJ and the Government
merely states that the BoJ will ease to achieve the two percent
inflation target, without mentioning the exact methodology for
However, markets should not fret so much on this detail as the
BoJ on December 20, 2012 announced a new round of easing of 1
trillion yen, increasing the size of the asset purchase program
by 9.5 percent. Therefore, there is still a strong flow of
monetary stimulus flowing into the Japanese economy already,
regardless of the lack of new purchases in the statement issued
A successful move to increase inflation and devalue the yen
would boost Japanese exporters. Specifically, Japanese automakers
and technology companies would benefit from a weaker yen.
Companies such as Honda Motor Corp. (NYSE:
), Toyota Motors (NYSE:
), and Sony (NYSE:
However, the BoJ must be concerned with the negative effects
of such policies. Too much easing could cause runaway inflation
which would hurt margins as companies have to continually
increase employee wages to meet inflation. Also, currency wars
risk locking the nation out from global trade.
The next major announcement which will signal the pace of
improvement in Japan will be the appointment of the next leader
of the Bank of Japan. Current head Masaaki Shirakawa's term ends
in April and the appointment of a pro-stimulus leader who pledges
even more stimulative policies would be a positive sign for
easing and stimulus efforts.
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
Gain access to more investing ideas, tools & education.
Get Started on Marketfy, the first ever curated
& verified Marketplace for everything trading.