Bank of Japan Holds the Interest Rate but Takes Soft Economy Stimulus

It is clear that nobody wants to quit the QE group. ECB and FED both stated to hold the rate unchanged. Bank of Japan states it will hold the rate unchanged and also expand the ETFs buyback stimulus to inject more capital to the market. With every cost to achieve its 2% inflation rate target, the JPY decrepitated a lot after a huge rally from Brexit.  From this statement of Japan, JPY is definitely not one of the safe place that supposed to be.

The Bank of Japan announced only a modest dose of monetary stimulus Friday, disappointing investors who expected a bolder move to complement a new government spending package.

It will be the first such review since BOJ Gov. Haruhiko Kuroda unleashed what investors dubbed a “monetary bazooka” in early 2013, vowing to achieve 2% inflation within two years by taking bold, pre-emptive action anytime that price goal appeared threatened.

More than three years later, the central bank’s goal is out of reach for at least the next year, according to the most optimistic estimates. And Japan’s economy has sputtered in recent quarters, contributing to a growing global consensus that monetary policy alone won’t be enough to rescue developed economies from stagnation.

Mr. Kuroda dismissed suggestions that the central bank had run out of ammunition. He noted that it nearly doubled its purchases of Japanese exchange-traded funds to ¥6 trillion ($57 billion) annually, up from ¥3.3 trillion. He said there was still room for additional purchases of Japanese government bonds, and to push a negative interest rate on some bank reserves even lower.

Now, BOJ will examine that impact of its JGB purchases on the market as part of its policy assessment, which will look at the effects and drawbacks of its easing measures, Mr. Kuroda said.

Toshihiro Nagahama, chief economist at Dai-Ichi Life Research Institute, was among economists who concluded from the BOJ’s actions and Mr. Kuroda’s words that quantitative easing had reached its limits, and was looking for a way to make them more sustainable in a longer battle against deflation than originally expected. Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities, said that in addition to scaling back its JGB purchases, the BOJ may also “freeze” negative rates, which are deeply unpopular with banks and the public.

 By expanding the buyback from ETF on the market, BOJ believed this action will provide more capital to the market in the purpose to lift up investment and urge people to spend more. However, the labor problem of Japan is still out of the table. Without new immigration policies coming to the discussion, function from QE to improve the economy condition is really limited. 

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