Bank of Japan helps Asia stocks end painful month with a bang
HONG KONG: The Bank of Japan’s shock announcement that it would charge banks to hold their cash sent Asian markets surging and the yen tumbling Friday, as investors ended a highly volatile month with a bang.
Trading floors across the planet have been awash with red in January as investors endured one of the worst starts to a year in recent history with weak global growth and crashing oil prices.
Some stability seemed to be established over the past week, however, on hopes that the Bank of Japan and European Central Bank will ramp up their stimulus programmes.
And on Friday, Japan’s central bank policymakers stepped up, unveiling a new weapon in their long-running fight against anaemic economic growth and deflation.
After a two-day meeting, the bank’s policy committee said it would adopt a negative interest rate policy, meaning banks pay to park their cash in the BoJ.
The move aims to give banks an incentive to boost lending, which in turn should help fuel economic growth.
A similar policy was adopted by the European Central Bank in 2014, the first time by a major central bank.
“It’s a surprise,” Hideaki Kuriki, a bond investor in Tokyo at Sumitomo Mitsui Trust Asset Management, told Bloomberg News. “They think the ECB policy is successful so they’re taking the same policy.”
But some were less upbeat, with Norihiro Fujito, general manager of Mitsubishi UFJ Morgan Stanley Securities, saying the bank was “pointlessly confusing the market”, adding it was “symbolic of the limits of the BoJ’s policies”.
Still, the news sent Japan’s Nikkei stock index soaring more than three percent at one point, before ending 2.8 percent higher. The yen fell to 120.80 against the dollar in the afternoon, compared to 118.60 before the announcement.
– ‘Tough year’ ahead –
“The decision… suggests that the yen will weaken further against the dollar in coming months,” Marcel Thieliant, senior Japan economist at Capital Economics, said in a note, predicting the dollar will be worth 130 yen by the end of 2016 and 140 yen by the end of next year.