The yen sank to a three-and-a-half-year low against the US dollar in Asia yesterday after the Bank of Japan unveiled a huge stimulus plan aimed at ending decades of deflation and boosting the economy.
The Japanese currency extended losses seen on Thursday immediately after the central bank made its announcement, which took investors by surprise.
However, some analysts warned the unproven measures could end up inflating the country’s huge national debt with little else to show for it.
In Tokyo morning trade, the US dollar soared past ￥97 to its highest level since August 2009, good news for Japanese exporters as it makes them more competitive overseas and boosts the value of foreign income.
The greenback fetched ￥97.05 against ￥96.33 in New York late on Thursday, before settling at ￥96.35 in afternoon trade. It was way up from below the ￥92.71 level before the announcement.
The euro also jumped to ￥125.43, from ￥125.20 in US trade, and much higher than ￥119.66 on Thursday morning. It fetched ￥124.59 in the afternoon.
Shares were boosted by a tumbling yen. The Nikkei soared more than 4 percent in early trade yesterday, past 13,100 to intraday highs last seen in August 2008 just before the global financial crisis rocked markets.
It ended yesterday’s session up 1.58 percent, or 199.10 points, at 12,833.64 on its biggest volume since the Tokyo Stock Exchange opened in 1949, with 6.45 billion shares changing hands.
The broader TOPIX index of all first-section shares jumped 2.74 percent, or 28.48 points, to finish at 1,066.24.
Analysts said the Japanese currency would likely face further pressure.
“The key focus has been the yen, after the Bank of Japan [BOJ] yesterday over-delivered on easing expectations,” National Australia Bank said. “The BOJ’s actions were supportive of yen weakness.”
Market speculation had been building for weeks about what the Bank of Japan would do after its first policy meeting under new governor Haruhiko Kuroda, who earlier this week had promised bold measures.
The central bank said it would aim to double money supply and aggressively increase asset purchases, including longer-term government bonds, in a move aimed at pushing down long-term interest rates to encourage companies and individuals to borrow, instead of hoarding their cash.
The bank also said it is aiming to hit a 2 percent inflation target within two years, to reverse years of falling prices that have weighed on Japan’s economy by crimping private spending and corporate investment.
Kuroda said the new-look bank is “resolved to take whatever measures we can think of” to hit the ambitious target, seen as more explicit than the bank’s previous inflation “goal.”
London-based Capital Economics said the central bank ushered in “bolder steps than we had thought likely.”
However, it added: “The bank won’t help itself in the long run if it makes promises it can’t keep and here, we suspect, doubts will start to creep in.”
The US dollar was mostly higher against other Asia-Pacific currencies yesterday, firming to 1,129.03 South Korean won from 1,123.65 won a day earlier, to 54.79 Indian rupees from 54.61 rupees and to 41.19 Philippine pesos from 41.06 pesos.
It also advanced to S$1.2397 from S$1.2396 in Singapore and NT$29.92 from NT$29.88, but it eased to 9,756 Indonesian rupiah from 9,760 rupiah and to 29.32 Thai baht from 29.35 baht.
The Australian dollar fell to US$1.0418 from US$1.0443, while the yuan fetched ￥15.53 against ￥15.26.
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