Japan stock market traded low as the yen surged after the Bank of Japan decided against any extra monetary easing.
The Bank of Japan (BoJ) kept interest rates unchanged despite coming under pressure to take further action.
The central bank had introduced negative rates in January but this failed to provide a much needed boost for the economy.
The Nikkei 225 index finished 3.6% lower at 16,666.05. New economic data also showed a slip back into deflation while industrial production expanded.
Japan has for years been trying to boost its economy and end a period of stifling deflation.
One way to try to achieve this is by monetary policy, which is one of PM Shinzo Abe’s three key “Abenomics” policies to turn around the economy.
However, even negative rates – meaning commercial banks will be charged if they deposit money with the central bank – have not trickled down to get banks to lend more and companies and people to invest or spend more.
Inflation is still far off the 2% target.
The BoJ’s decision to hold rates also sent the yen currency soaring, which is likely to have a negative effect on the crucial export sector.
The yen rose nearly 2% against the dollar, with one dollar worth 109.33 yen.
The Japanese economy contracted by 0.4% in Q4 of 2015 compared with the previous quarter, official figures show.
Expectations for the numbers were for a quarterly contraction of 0.3%.
Weaker domestic demand, together with slower investment in housing, contributed to the disappointing numbers.
On an annualized basis, Japan’s economy contracted 1.4% during the period. That compares with expectations for an annualized contraction of 1.2%.
The annualized figure is the rate at which the economy would have contracted over a full 12 months had the December quarter been a reflection of the entire year.
PM Shinzo Abe’s plan to revive the economy – dubbed Abenomics – was introduced after his December 2013 election win.
Its aim was to combat deflation, which Japan has struggled with for nearly two decades, as well as boost demand and investment. It also wanted to weaken the yen, so helping big exporters like Toyota become more competitive.
However, growth has remained a concern. Analysts say Japan needs to ensure exports grow in order to support future economic growth – for every 1% that Japan’s economy grows, between 0.5 and 0.7% comes from exports.
Japan also relies heavily on domestic consumption but its population is ageing and shrinking so fewer people are contributing to the economy.
In Q3 of 2015, according to revised numbers, Japan avoided a technical recession. It has already been in recession four times since the global financial crisis.
Some analysts said February 15 numbers should be viewed in context.
“A single negative growth number should not be over-interpreted because the economy remains in rather good shape and continues to get strong policy support,” said economist Martin Schulz.
Investors seemed to shrug off February 15 growth numbers, with the benchmark Nikkei 225 jumping more than 4% shortly after the figures were released.
However, the benchmark shed more than 11% last week, which was a short trading week due to a public holiday on February 11.
Japan’s big exporters were particularly hard hit as a stronger yen against the dollar hurt investor sentiment.
Japan’s stock market traded sharply higher on February 1 as investors continued to cheer January 29 surprise move by the central bank to cut its rates.
Tokyo’s Nikkei 225 closed up 1.98% to 17,865.23 – its highest close since early January.
The benchmark closed up almost 3% on January 29 after the BoJ cut its rates to -0.1%.
The move is designed to spur inflation, investment and spending. Analysts said it was a turning point for the bank.
Elsewhere, manufacturing activity in China, the world’s second biggest economy, shrank more than expected in January from a month earlier, which dented confidence among investors.
Hong Kong’s Hang Seng index closed 0.5% lower at 19,595 in afternoon trade, while the Shanghai Composite was down 1.8% at 2,688.
China’s official Purchasing Managers’ Index (PMI) came in at 49.4 for the month compared to December’s reading of 49.7. The data marks the sixth month of contraction in the sector.
Expectations were for a reading of 49.6 for the month. A reading of above 50 indicates activity has grown, while a reading of below 50 indicates activity has contracted.
In South Korea, the Kospi index closed up 0.67% to 1,924.82, reversing earlier losses.
Disappointing trade numbers released on February 1 showed exports contracted 18.5% in January from a year earlier. It marks the 13th month in a row the nation’s exports have shrunk and is the worst result for exports since mid 2009.
Imports also contracted for the period by 20.1%.
In Australia, the ASX 200 finished the day up 0.76% at 5,043.60 following gains in the US.
The Bank of Japan (BoJ) has adopted a negative interest rate in a surprise move.
The benchmark rate of (-0.1%) means that commercial banks will be charged by the central bank for some deposits.
The BoJ hopes this will be a disincentive to banks to save and prompt them to lend in another attempt to counter the continuing economic slump in the world’s third-largest economy.
The eurozone also has negative interest rates, but this is a first for Japan.
It is a move that has been on the cards for Japan’s stagnating economy for well over 10 years.
The decision to go negative came after a narrow 5-4 vote at the Bank of Japan’s first meeting of the year on January 29.
“The BoJ will cut interest rates further into negative territory if judged as necessary,” the Bank of Japan said, adding it would continue as long as needed to achieve an inflation target of 2%.
Some analysts have cast doubt over how effective the rate cut will be.
In a press conference, the BoJ’s governor Haruhiko Kuroda said the weakening growth rate of the global economy was the main factor behind the move: “Japan’s economy continues to recover moderately and the underlying price trend is improving steadily… further falls in oil prices, uncertainty over emerging economies, including China, and global market instability could hurt business confidence and delay the eradication of people’s deflationary mindset.”
Earlier in the day, fresh economic data had again highlighted concerns over economic growth. The December core inflation rate was shown to be at 0.1% – far below the central bank’s target.
Asian shares jumped and the yen fell across the board in reaction to the announcement. Japanese banks though saw their shares drop on the news as lenders are likely to see their margins squeezed even more.
The decision comes in addition to the BoJ’s massive asset-buying program, which over the past years has failed to boost growth.
Japanese shares rose to a two-month high on Friday, October 30, after Bank of Japan decided to keep its monetary easing policy steady.
The benchmark Nikkei 225 initially fell on the decision by more than 0.4%.
The index recovered to close up 0.78% at 19,083.1 points.
BoJ’s 2% inflation target was also pushed back by about six months.
While forecasts for economic growth for the year to March 2016 were also lowered to 1.2% from 1.7%.
Japan’s central bank governor Haruhiko Kuroda told reporters on October 30 the inflation target timing had been delayed “largely due to the effect of energy price falls”.
The BoJ’s current stimulus package is designed to give a boost to the world’s third-largest economy.
Private consumption makes up some 60% of Japan’s economic activity, but the country has struggled with deflation, or falling prices, for more than 15 years. Lower prices for goods in Japan have seen consumers hold on to their money in the hope of even lower prices later on.
The stimulus package is designed to encourage lending, which in turn should see consumers spending more.
Earlier on Friday, a string of domestic data showed Japan’s core consumer inflation number had fallen 0.1% in September from a year ago, household spending had fallen 0.4% year-on-year while unemployment had remained steady at 3.4% compared to August.
The data fuelled some speculation the BoJ would make a move. But eight out of nine board members voted in favor of the decision.
Asian markets traded higher on September 30, recovering from the previous session’s steep losses, despite disappointing economic news from Japan.
The Japanese index, Nikkei 225, led the region’s gains, closing up 2.7% at 17,388.15, after losing more than 4% on September 29.
Investors ignored data that showed Japanese factory output shrank by 0.5% in August from July, and retail sales also fell short of expectations.
Investors are awaiting the Bank of Japan’s business confidence survey.
Bank of Japan’s quarterly Tankan survey due on October 1 is expected to show that business sentiment worsened in the three months to September.
Shares in Japan Tobacco fell 6.7% on concerns that it has paid too much to buy the rights for Reynolds American’s Natural American Spirit tobacco brand outside the US for 600 billion yen ($5 billion).
Chinese shares headed higher as investors took in news of a new tax cut on some car sales.
A government announcement on September 29 said the sales tax on cars with smaller engines would be halved. The cut will be effective from October 1, 2015, until the end of 2016.
China is the world’s biggest market for cars and the new tax cut will apply to about 70% of the market.
Hong Kong’s Hang Seng index closed up 1.14% at 20,851.32, while the Shanghai Composite closed up 0.48% at 3,052.78.
Australia’s benchmark S&P/ASX 200 index closed up 2.1% at 5,021.60 after hitting a two-year low on Tuesday.
Meanwhile, South Korea’s Kopsi index ended up 1% to 1,962.91 as it reopened following public holidays.
Japan’s core consumer price index (CPI), fell on an annual basis for the first time in over two years in August.
The CPI, which includes oil but not fresh food prices, declined 0.1% from a year ago – the first drop since April 2013.
The headline consumer price index rose 0.2% from a year ago, but remained flat from the previous month.
Photo Reuters
Deflation fears have plagued Japan, putting pressure on policymakers.
PM Shinzo Abe and Bank of Japan have pledged to get the economy out of the deflation it has been battling for years.
Even though the fall in prices in August was expected, economists said the latest reading would result in Japan’s central bank stepping up its pace of easing in October.
Japanese Economics Minister Akira Amari told the media on September 25 that it was up Bank of Japan to take appropriate steps on monetary policy after the data came out.
The Japanese yen has reached its lowest level since 2008 against the US dollar after the central bank began the latest round of its stimulus programme.
The yen fell as low as 98.85 against the dollar, before rebounding slightly.
Investors said the Bank of Japan’s plan to buy assets worth trillions of yen, which has government backing, would continue to weaken the currency.
As a result, the yen may break through the 100 mark against the dollar as early as this week.
The Japanese yen has reached its lowest level since 2008 against the US dollar after the central bank began the latest round of its stimulus programme
“This has really shaken up many people’s attitudes toward the Bank of Japan and the new government,” said Andrew Wilkinson, chief economic strategist at Miller Tabak and Co in New York.
“It feels like it’s gathered a whole new momentum behind it, as the doubters have joined the bandwagon and it’s becoming a self-fulfilling prophecy.”
Last week, the BOJ said it would double the supply of the currency in the market.
The central bank added that it would be much more aggressive in pursuing a 2% inflation target to boost growth.
A weak yen helps Japanese exporters keep their products competitive, as well as boosting profits earned overseas.
On Monday, exporters helped push the main Nikkei 225 stock index 3.1% higher, before the gains were pared back in later trading.
Japan’s stock market has reached its highest level since 2008, after a recent central bank stimulus plan raised hope of economic revival.
The main Nikkei 225 stock index climbed as much as 4.7% to 13,225.62, its highest since August 2008.
The Bank of Japan (BOJ) said on Thursday it would double the country’s money supply to spur growth and halt falling prices.
The step was much bigger than expected and signaled a more aggressive approach towards driving growth.
Analysts said that BOJ moves had got the attention of investors both at home and abroad.
Japan’s stock market has reached its highest level since 2008, after a recent central bank stimulus plan raised hope of economic revival
“Many investors who were not even interested in Japan before have opened their eyes,” said Tetsuro Ii, chief executive of Commons Asset Management.
“They realized that if they continue to look at Japan the way they did before, they are going to lose.”
By pumping more money into the system, Japan is hoping to promote price growth, ending a cycle of deflation, recession and sputtering economic recovery.
At the same time, it is also seen as an attempt to weaken its currency and boost exports.
The Japanese yen has declined 4.5% against the US dollar in the past two days, and more than 5% against the euro.
Analysts said the yen was likely to remain weak in the coming months.
“The big party we are having in the markets now is, of course, the financials. Banks are getting more money for free, utilities with big investment projects are getting zero cost capital now,” said Martin Schulz from Fujitsu Research Institute.
“The big story, and the lasting story, will be the exporters. A weaker yen helps the exporters to earn money with Japanese technology in Asian markets in particular.”
On Thursday, the BOJ embarked on what some are calling a new era of monetary easing.
It will increase its purchase of government bonds by 50tn yen ($520bn; £350bn) annually, the equivalent of almost 10% of Japan’s gross domestic product, or total economic output.
BOJ governor Haruhiko Kuroda defended the size of the stimulus saying the government’s inflation target of 2% would remain out of reach if the central bank continued its incremental steps.
Haruhiko Kuroda said he would “do whatever it takes” to drive growth.
However, analysts say Japan’s new direction is likely to provoke a reaction from their main competitors.
The BOJ’s moves to buy additional bonds is an attempt to keep long-term interest rates low.
The bank hopes that pumping money into the system will make borrowing cheap and encourage consumers and businesses to spend.
The central bank has also said that it would buy riskier assets such as exchange-traded funds and real estate trust funds.
While such moves may help halt years of falling prices, some analysts have warned that there is a risk that so much liquidity in the markets may trigger an artificial rise in asset prices.
“We think there is a risk of a bubble,” said Hiroshi Shiraishi, senior economist at BNP Paribas Securities.
“If these types of asset purchases are going to work, then they work by distorting asset markets.”
However, on Friday Haruhiko Kuroda sought to allay those fears, saying the bank will keep a close eye on the markets.
“I don’t think there’s a bond or stock market bubble now and I don’t see one emerging any time soon,” he told Japan’s lower house of parliament.
The Bank of Japan (BOJ) has announced it will dramatically expand the country’s money supply, as it tries to stimulate the economy growth.
The Japanese central bank vowed to boost an asset purchase programme and meet a 2% inflation target in two years, after a two-day meeting, the first chaired by new governor Haruhiko Kuroda.
Japan’s economy, the world’s third-largest, has been battling more than a decade of falling prices.
Haruhiko Kuroda had previously said he would do “whatever it takes” to drive growth.
The Bank of Japan has announced it will dramatically expand the country’s money supply, as it tries to stimulate the economy growth
“The BOJ will conduct money-market operations so that the monetary base will increase at an annual pace of about 60 trillion yen to 70 trillion yen [$645 billion to $755 billion],” the BOJ said in a statement.
This increase in the money supply is expected to stoke inflation.
Many analysts have said that falling prices discourage people from spending, and companies from investing, and that has trapped Japan in a cycle of sluggish growth and recession.
The yen fell against the US dollar, and Tokyo’s Nikkei 225 index rose 2.2% on the central bank’s decision, indicating markets were reacting positively to the stimulus measures.
“The measures announced overall were bold, and more than what had been expected,” said Hiroshi Maeba, from UBS in Japan.
“The markets clearly saw that the BOJ did all it can at this point and responded accordingly.”
PM Shinzo Abe, who was elected last year, has been pushing for the BOJ to do more to help the economy.
His plan, a combination of big government spending as well as an aggressive central bank asset buying programme, has been dubbed Abenomics.
Haruhiko Kuroda, who was nominated by Shinzo Abe for the top job at the central bank, is seen as sharing those views, which are a departure from the BOJ’s previous stance.
On Thursday, the central bank said it would also increase its purchases of Japanese government bonds to a total of 50 ttillion yen, a move aimed at bringing down interest rates and spurring lending.
The BOJ also extended the average maturity of the bonds it purchases from three years to seven years. Finally, the bank said it would also buy relatively riskier assets such as exchange-traded funds and real estate trust funds.
The decisions passed with unanimous votes from the board of the BOJ, an indication that this would mark the beginning of Haruhiko Kuroda’s shift towards more aggressive monetary easing.
However, some observers have expressed concern that this new strategy will leave Japan, which already has the largest debt pile of any industrialized nation, even more in the red.
Asian stock markets have continued a global rally after New York’s main Dow Jones share index hit a historical record high.
Equity markets in Asia, the US and Europe have been buoyed by central bank attempts to revive economic growth by pumping cash into the financial system.
Analysts said that this has helped ease fears of continuing political problems and slower corporate profit growth.
In Asia on Wednesday, the main indexes in Japan and Australia hit their highest levels since September 2008.
Japan’s Nikkei was 1.1% higher in early trading while Australian shares were up 0.9%. Shares in Hong Kong, Shanghai and Singapore also posted gains.
The dollar eased 0.2% against a basket of key currencies while copper and crude oil prices rose.
The rally on Wall Street means the main US indexes have erased the losses brought on by the global financial crisis.
Dow Jones closed at 14,256 after investors were buoyed by signs of recovery in the US housing market in recent months, and data showing growth in the services sector.
The share index ended the day more than double its low of 6,547 in March 2009.
London’s FTSE 100 closed at a five-year high on Tuesday.
Analysts said sentiment was being boosted mainly because of the stimulus programs being conducted by the US, Europe and Japan.
Asian stock markets have continued a global rally after New York’s main Dow Jones share index hit a historical record high
In the US, Federal Reserve chairman Ben Bernanke has engaged in a campaign of massive bond-buying while keeping interest rates at a record low to help support the world’s largest economy after the global financial crisis in 2008.
The program known as quantitative easing or QE3, is in its third phase, and has been made open ended.
“To be sure, it was Bernanke’s reassurance, at last week’s congressional testimonies on monetary policy, to keep QE3 on its present course that turned a worried stock market into a record high,” said analysts at DBS Bank in Singapore.
The European Central Bank and the Bank of Japan have also taken steps to boost liquidity.
However, despite the positive sentiment on the markets analysts said there were risks on the horizon.
China’s move to curb high property prices, the impact of the US spending cuts as well uncertainty after the elections in Italy could still weigh on investors.
These concerns, however, are for now being overshadowed by the notion that central banks will continue to support the fragile global economic recovery.
“That’s fantastic testament to the power of easy money, in the face of doubts about the US economy now that fiscal spending is being cut back,” said Kit Juckes, from Societe Generale.
The European Central Bank, the Bank of Japan and the Bank of England will hold their policy meetings on Thursday.
Most analysts expect the three central banks to continue their policies aimed at spurring growth in their economies.
Haruhiko Kuroda has been nominated by Japan’s government to be the next governor of the country’s central bank.
Haruhiko Kuroda is currently the head of the Asian Development Bank and is seen as a supporter of aggressive monetary easing to help revive Japan’s economy.
The government, which recently won a general election, wants the Bank of Japan to do more to boost growth.
Both the upper and lower houses of Japan’s parliament will now need to vote and approve the nomination.
Kikuo Iwata and Bank of Japan official Hiroshi Nakaso were also nominated to serve as the central bank’s deputy governors.
Prime Minister Shinzo Abe won the general election on a platform of promises to help revive Japan’s economy, which has seen years of stagnating growth.
A more aggressive monetary policy stance by the central bank has been something that Shinzo Abe has been advocating for, citing it as key to spurring a fresh wave of economic growth.
During his election campaign Shinzo Abe had even hinted that the government may look at altering the law that ensures the central bank’s independence if it does not take adequate steps.
Although Shinzo Abe toned down his rhetoric later on, it did indicate how crucial the appointment of a new governor would be, not just to the relations between the government and the central bank, but also the BOJ’s independence going forward.
Analysts said that if Haruhiko Kuroda’s nomination is approved by the parliament, it would be a win-win situation.
“This clearly indicates that the government and the central bank will be working towards the same target and there will be an agreement on what direction the Japanese economy should take from here,” said Junko Nishioka of RBS Securities.
Junko Nishioka added that with Haruhiko Kuroda being a supporter of aggressive policies, it was unlikely that the government take the extreme step of altering the BOJ law.
“It does necessarily mean that the BOJ is not going to give up its independence,” she added.
Haruhiko Kuroda has been nominated by Japan’s government to be the next governor of the country’s central bank
Among the policies suggested by Shinzo Abe has been a call for stoking inflation as a means to boosting domestic demand.
Japan, unlike many other Asian nations, has been fighting deflation or falling consumer prices for best part of the past decade.
It has been a big hurdle in its attempts to boost domestic consumption as consumers tend to put off purchases in the hope of getting a cheaper and better deal later on.
Shinzo Abe has hinted that the central bank should print “unlimited yen” to help fight deflation and encourage price growth.
The idea being that with more money floating around, consumers will have more cash to spend and that will help drive up demand and consumer prices.
Under pressure from the government, the central bank doubled its inflation target to 2% last month, a move seen as key by many analysts to help revive domestic demand.
Haruhiko Kuroda, who is seen as a advocate of inflation target, has suggested that the central bank should try and achieve a 2% inflation rate within two years.
“Under Kuroda-san the BOJ will take a proactive approach towards achieving the inflation target,” said Junko Nishioka.
The government’s aggressive stance has resulted in a sharp decline in the yen.
The Japanese currency has dipped nearly 15% against the US dollar since November last year.
The yen fell further on Thursday, down by nearly 1% against the US dollar, after the government announced Haruhiko Kuroda as its nominee to head the central bank.
Japan’s economy contracted in the third quarter of 2012, as a global economic slowdown and anti-Japan protests in China hurt its exports, while domestic consumption remained subdued.
Japan’s gross domestic product (GDP) contracted 3.5% from a year earlier.
Compared with the previous three months, the economy contracted 0.9%.
The weak data is likely to put pressure on the government to boost stimulus measures to spur growth.
“There are risks from both domestic and external factors,” said Tatsushi Shikano, senior economist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
“As such, the Bank of Japan [BOJ] will stand ready to ease monetary policy again, and it would not surprise me if the BOJ eased again by the end of this year.”
Japan’s economy, the world’s third-largest, has been trying to recover from last year’s earthquake and tsunami, which caused widespread destruction in the country.
However, its recovery has been hampered by a combination of factors.
A slowdown in key markets, such as the US and eurozone has hurt demand for its exports, one of the biggest drivers of Japanese growth.
Slowing growth and anti-Japan protests in China – Japan’s biggest trading partner – have further impacted its export sector.
To add to its woes, the debt crisis in the eurozone and weak recovery in the US have seen many investors flock to safe-haven assets such as the yen, resulting in the Japanese currency strengthening against the US dollar and the euro.
The yen has risen 5% against the US dollar since March this year and 8.5% against the euro during that period.
That makes Japanese goods more expensive for American and European consumers, hurting the earnings of the country’s exporters.
To make matters worse, attempts by policymakers to boost domestic demand have had little effect. Private consumption fell 0.5% in the July to September quarter, from the previous three months.
Analysts said that given these factors the economy was likely to shrink further in the current quarter and enter a technical recession.
“The decline in exports seems large. Consumption and capital expenditure were also weak, showing that both external and domestic demand are weak,” said Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo.
“Economic data deteriorated sharply from September, and this means Japan is already in recession,” he added.
Faced with slowing external and domestic demand, Japan’s central bank has taken various steps to try and spur growth.
Earlier this month, the BOJ extended its asset purchase programme by 11 trillion yen ($138 billion). Under the programme, the central bank buys bonds to keep long-term borrowing costs down.
It also said that it will offer unlimited loans to banks to encourage lending in an effort to boost domestic consumption.
However, analysts said the measures were unlikely to have a major effect, not least because firms were holding back expansion plans in the wake of an uncertain economic environment.
“There is very little demand for credit. In fact Japanese firms are holding back on capital expenditure,” said Junko Nishioka, the chief economist of RBS Securities in Tokyo.
Junko Nishioka added that policymakers instead needed to focus on measures that will help weaken the yen, as the uncertain global economic environment was likely to see the Japanese currency, which is seen by some as a safe-haven asset in such times, remain strong.
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