BoJ increases ETF purchasing in latest monetary easing move

There was speculation this may reflect the plans of the European Central Bank. Japan’s central bank has opted for a modest e…

Pressure for BOJ action has intensified leading up to the rate review with Japan’s economy minister urging the bank to work with the government to spur growth in the wake of Prime Minister Shinzo Abe’s announcement of a bigger-than-expected ¥28 trillion stimulus package on Wednesday.

However, analysts said pressure from the government and markets was largely behind the move.

“It is hard to understand why the BOJ did not ease more aggressively today”, said Masaaki Kanno of JPMorgan in Tokyo.

The central bank did not change its benchmark interest rate, which is now at a record low minus 0.1 percent. A US-dollar lending program was expanded to $24 billion from $12 billion. Consumer prices are now forecast to rise 0.1% in fiscal 2016, compared with the earlier 0.5% estimate, with 2017 projections unchanged at 1.7%.

US gross domestic product increased at a 1.2 percent annual rate, the Commerce Department said.

“Although we continue to look for equipment spending to remain soft in 2Q, real consumption should show a solid rebound”, Societe Generale economists wrote in a note to clients. The target increase in the monetary base was also held at JPY80trn per annum.

BOJ board members updated their economic projections at this week’s meeting.

At the same time, the BoJ kept interest rates unchanged at -0.1% on Friday but said it will increase purchases of exchange-traded funds.

The British pound is up by 0.4% at 1.3216 against the dollar.

The limited policy action from the BOJ move underscores a perception that it is running into operational challenges as the Kuroda era of massive stimulus wears on. The former Finance Ministry currency-policy chief fired his first bazooka weeks after taking the BOJ’s helm in March 2013, and surprised investors by expanding the program in October 2014.

He stressed that there was still more room to deepen negative rates or expand bond purchases.

“Volatility will inevitably be a key feature with sterling liable to be vulnerable into the decision”, they said.

That still left it short of levels seen as investors flooded into the traditional security of Japan after Britain’s vote to leave the European Union last month but saw a number of banks again calling the yen higher.

However, the yen’s surge against the dollar is bad news for Japanese exporters, given a strong yen makes their businesses less competitive. “The government’s stimulus package helps reinforce this drive and is timely in achieving sustainable growth with price stability”, BOJ governor Haruhiko Kuroda told a news conference after the decision.