Japanese yen strengthens ahead of BOJ policy decision

But the latest decision by the central bank relieved the banking industry, at least for now.

Asian markets were mixed Friday after the Bank of Japan announced a modest expansion of its lavish monetary stimulus to perk up sluggish growth, sending the Japanese stock index up.

The Bank of Japan (BOJ) on Friday expanded its purchases of exchange-traded funds (ETF) and doubled the size of a USA dollar lending program, while refraining from boosting the pace of government bond purchases that have formed the main part of its monetary stimulus.

Banks will also benefit from the increased dollar lending facility.

That followed an announcement by Prime Minister Shinzo Abe earlier this week of 28 trillion yen ($267 billion) in spending initiatives to help support the sagging economic recovery. Ahead of the meeting, speculation had mounted over the possibility for a so-called “helicopter money” approach that would entail more direct infusions of money into the economy.

“It is hard to understand why the BOJ did not ease more aggressively today”, said Masaaki Kanno of JPMorgan in Tokyo. Gov. Haruhiko Kuroda showed confidence that the bank’s beefed-up monetary policy, in conjunction with the government’s stimulus package, will lift Japan’s economy.

“Pushing off of the policy assessment to September helped them a lot”, Englander added, noting that the market reaction could have been larger.

Stocks in Japan absorbed the BOJ’s decision a little more easily, in part because the central bank increased the purchases of exchange-traded funds (ETFs) in its easing package.

This is targeted to increase by $24 billion, around Y2.5 trillion, and double the previous size of $12 billion, under this lending program, the BOJ provides its USA dollar funds for a period of up to four years, to support Japanese firms’ overseas activities through financial institutions.

The central bank said it would boost its exposure to riskier investments, but left a massive 80 trillion yen ($772 billion) annual bond-buying programme unchanged.

The BoJ also held negative interest rates unchanged at -0.1%. Silver was down 0.4 percent at $20.07 an ounce, and headed for a second monthly gain, after a 7.6 percent rise in July.

The yen rose to as high as 103.30 to the dollar from 105.30 in late USA trade on Thursday, which market players largely attributed to the result of “fat finger” orders exacerbated by thin trading conditions as there was no apparent news to justify such a big move.

The yen jumped 3.04 percent against the dollar, whose decline put the trade-weighted dollar exchange rate on course for its biggest weekly fall in two months.

OIL WEAKNESS: Exxon Mobil fell 3 percent and Chevron lost 1 percent after both companies reported steep drops in quarterly earnings due to low oil prices.