The Bank of Japan (BOJ) yesterday held off fresh monetary easing measures, but said it would tweak a loans scheme to stimulate borrowing, sending Tokyo shares surging more than 3 percent in the afternoon.
Wrapping up a two-day policy meeting, the BOJ said it would keep its massive easing program in place, while moving to fire up lending to firms and consumers.
The BOJ’s decision came after weak Japanese growth data for the final quarter of last year exacerbated fears about the economic impact of a sales tax rise due in April.
The BOJ announcement sent the yen tumbling, with the greenback buying ￥102.66, from below the ￥102 level earlier yesterday, and pushed the Nikkei stock index 3.27 percent higher by mid-afternoon.
Analysts are widely predicting the bank will have to expand its asset-buying plan later this year to counter any slowdown from the tax hike. Further easing would be likely to weigh on the yen, as the US Federal Reserve rolls back its own stimulus program.
On Monday, fresh data showed that while Japan’s economy expanded by 1.6 percent over last year, it slowed to 0.3 percent in the October-to-December quarter, presenting a major challenge for Japanese Prime Minister Shinzo Abe and his bid to reverse almost two decades of deflation.
“These data reinforced investor expectations that the Bank of Japan will need to step up its [easing] program at some point,” National Australia Bank said.
London-based Capital Economics said that the fourth-quarter data were “not as bad as headlines imply,” although they “fell short of expectations.”
“It was no surprise that the Bank of Japan did not change course at today’s meeting, but we still think that more easing will eventually be required,” Capital Economics added.
Bank of Japan Governor Haruhiko Kuroda unveiled the vast asset-buying scheme in April last year — which aims to boost the supply of money in the financial system — as part of the broader plan by Abe to reinvigorate the economy and eradicate years of falling prices, which have held back consumer spending and business investment.
The sales tax hike — to 8 percent from 5 percent — is seen as crucial to bringing down Japan’s eye-watering national debt, but it has also raised fears that it will derail Tokyo’s bid to kickstart the world’s third-largest economy.
On Tuesday, the bank maintained its upbeat assessment of Japan’s prospects, saying that the “economy has continued to recover moderately, and a front-loaded increase in demand prior to the consumption tax hike has recently been observed.”
Separately, the BOJ said it would double the amount available in loan schemes to banks, aimed at stimulating lending to firms and to finance growth-driving projects, such as environmental research and natural resources development.
“The bank expects that these enhancements will further promote financial institutions’ actions, as well as stimulate firms’ and households’ demand for credit,” the bank said.
Among the other measures was extending the timeline for a program aimed at stoking development in parts of the country hammered by the quake-tsunami disaster almost three years ago.