Bank of Japan Stepped-up REIT purchases may cause side effect

23 Dec 2015 | Author: | No comments yet »

BOJ trying to get firms to boost wages, investment.

NEW YORK — Stocks plunged across all sectors in the heaviest trading of the year Friday as enthusiasm over a long-awaited increase in U.S. interest rates faded.TOKYO • The Bank of Japan (BOJ) maintained its money-printing drive at the current rate yesterday, but reorganised its massive stimulus programme to advance Premier Shinzo Abe’s plans to prod companies into boosting wages and investment.The Japanese central bank jolted markets with a new scheme supporting companies actively investing in the world’s number three economy, stoking a brief surge in the Nikkei benchmark stock index and the dollar.

As widely expected, the central bank kept intact its policy target of increasing base money – or cash and deposits in circulation – at an annual pace of 80 trillion yen (S$920 billion) and the pace at which it buys government bonds and trust funds investing in stocks and property. But it decided to extend the duration of the Japanese government bonds (JGBs) it buys from 10 to 12 years from next year and set up a 300 billion yen fund to buy exchange-traded funds (ETFs) that target firms actively spending on capital expenditure and wages. “We’ve taken steps to supplement QQE (quantitative and qualitative easing) so that we can expand the programme without hesitation if needed,” he told a news conference after the decision. “Companies and households are shifting away from a deflationary mindset. The greenback traded lower at 121.79 yen late Friday afternoon from 122.56 yen before the declaration in Tokyo, and from 122.60 yen Thursday in New York. “At first it seemed like the BoJ was progressing with easing, but when you look at what’s inside that, it’s nothing much,” Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd, told Bloomberg News. Dealers had held on to the dollar in the wake of the Fed’s long-awaited decision on Wednesday to raise interest rates for the first time in nearly a decade, as the US central bank signaled confidence in the health of the world’s top economy.

We want to do whatever we can to support this drive.” Yesterday’s moves underscore the BOJ’s resolve to aid Mr Abe’s efforts to pressure companies into diverting more of their record profits to wage hikes and new investment, which are crucial to sustainably pull the economy out of deflation. Another drop in energy prices sent oil stocks lower again, and worries about weak global growth weighed on shipping and other transportation companies. The BOJ also said it would start selling, from April next year, the shares it had bought from financial institutions, giving it the power to buy shares of companies that meet its wage and investment standards and sell shares of those that don’t. Tokyo stock prices initially surged on the announcement but quickly pared gains as markets saw the new steps as a return to the incremental policy style Mr Kuroda said he had abandoned when launching his QQE programme in 2013. “The BOJ had never imagined that it would need to continue with QQE for this long,” said Ms Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley, yesterday. “Today’s step marks a shift from shock therapy to a long drawn- out struggle in its efforts to achieve 2 per cent inflation.”

U.S. stock trading was even more volatile than usual Friday because of the simultaneous expiration of several kinds of futures and other contracts that investors use to place bets on indexes and individual stocks. But over the next two days stocks were hit by some of the worries that have dogged them all year, like weakness in the Chinese economy, slowing global growth, and skidding prices for energy and metals.

The global market went into a similar slide two weeks ago, when the European Central Bank ramped up its stimulus efforts but didn’t do nearly as much as expected. Transocean gave up 74 cents, or 5.7 percent, to $12.26 while Ensco lost $1.08, or 7 percent, to $14.31 and Diamond Offshore Drilling dipped 70 cents, or 3.3 percent, to$20.47.

The dollar had climbed Thursday and is expected to gain strength as the Fed raises interest rates while central banks in Europe and Japan reduce interest rates.

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