Japan’s central bank yesterday stunned financial markets with a decision not to splash out still more monetary stimulus for the ailing economy — apart from zero-interest loans for an earthquake zone.
Share prices tumbled after the Bank of Japan (BOJ) ended its policy meeting without stepping up asset purchases or cutting interest rates further into negative territory. The Nikkei 225 stock index gave up early gains to close down 3.6 percent. The yen surged by about 3 percent.
“The BOJ never fails to surprise us. It is probable that the central bank is temporarily running out of tools to stimulate the economy, or they need more time to observe and assess the impact of negative interest rates,” CMC Markets’ Margaret Yang said.
However, while markets were disappointed, analysts said that the Bank of Japan could be biding its time out of both domestic and diplomatic considerations.
Japan is the host country for the G7 wealthy nations’ summit on May 26 and May 27. Stimulus that would help weaken the yen could irk some trading partners.
Later moves by the bank could benefit from a boost to Japanese government spending ahead of an upper house parliamentary election in July.
For now, the central bank is biding its time, despite having downgraded its outlook for the economy and pushed back its time frame for achieving a 2 percent inflation target.
The Bank Of Japan’s biggest move this year has been to adopt a “negative interest rate” policy, imposing a 0.1 percent fee on some money it holds for commercial banks, beyond required reserves.
That policy, imposed in February, so far appears not to be spurring any major increases in bank lending.
The earthquakes that struck two weeks ago in Kyushu, killing 49 people, are among several factors clouding the economic outlook, due to disruptions to tourism, logistics and manufacturing.
The central bank said that it would provide ￥300 billion (US$2.75 billion) in zero-interest rate loans to financial institutions in disaster-affected areas.
It also expanded the amount of reserves that can be held at zero percent interest at the central bank.
However, it left other aspects of its asset purchases and interest rate policies intact.
The bank’s announcement followed news that factory output in Japan rose 3.6 percent from a year earlier last month, while core inflation and consumer spending fell, underscoring a lack of confidence among households whose buying power remains the key to sustained growth.
Japan’s jobless rate shrank to 3.2 percent last month from 3.3 percent a month earlier, household incomes edged up 0.3 percent from a year earlier, while consumer spending contracted by 5.3 percent last month.
The central bank’s assessment of the economy cited sluggish exports and housing starts as factors sapping growth. It pointed to increased spending ahead of the Tokyo 2020 Olympics as a potential bright spot.
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