BOJ’s $2.5 Billion ETF Boost Seen Having Little Impact on Stocks

23 Dec 2015 | Author: | No comments yet »

Asian Stocks Halt Two-Day Rally as BOJ Disappoints Investors.

TOKYO (AP) — The Bank of Japan tweaked its lavish stimulus program Friday in a well-timed move that spotlights pressures on companies to do more to support growth by raising wages and investing in factories and equipment. This week, the U.S. central bank raised its key interest rate by a quarter percentage point, signaling confidence in the U.S. recovery at a time when Japan is still struggling to re-ignite growth after years of stagnation. The MSCI Asia Pacific Index slipped 0.7 percent to 129.61 as of 4:01 p.m. in Hong Kong, after jumping as much as 0.6 percent after the BOJ announcement. The BOJ said Friday after a scheduled policy meeting that it will expand purchases of shares in exchange traded funds, for companies that increase hiring and investment, by 300 billion yen ($2.4 billion) from the current 3 trillion yen ($24 billion). Then the news hit the tape: the central bank was going to extend the duration of the bonds it buys and start a new exchange-traded-fund purchase program.

Coming so soon after the Fed’s announcement, the BOJ’s policy meeting drew more than the usual amount of speculation over whether more stimulus was planned. So when headlines hit that it was making moves—extending the maturity of its government bond portfolio and introducing a new stock buying program—reaction was ecstatic. The dollar also jumped against the Japanese yen, to over 123 yen to the dollar, before falling back to 121.70, down from its previous close of 122.58.

Friday’s action wasn’t additional monetary easing in response to downside market risks, BOJ Governor Haruhiko Kuroda said at briefing in Tokyo after the two-day meeting. Some also said the moves showed human traders won over algorithm-based robots, saying the computers had been set up to react to any mention of expansion. “Don’t get me wrong, algos can help move quickly on headlines, but they’re sometimes bad at interpreting fundamental facts,” said Simon Pianfetti, a senior manager at the market solutions department at SMBC Trust Bank Ltd. in Tokyo. “I waited until the market calmed down. The Standard & Poor’s 500 Index ended a three-day advance as a stronger dollar in the wake of the Fed’s rate increase weighed on commodity shares, with crude tumbling below $35 a barrel. Rather, its statement described a need for “supplementary measures” to push companies to invest more in “physical and human capital.” Somewhat confusingly, the BOJ argued that companies are already doing so, but that still more encouragement would be “desirable.” On this score the BOJ’s new measures fell utterly flat. Fortescue Metals Group Ltd., the world’s fourth-largest iron-ore supplier, tumbled 6 percent in Sydney as Goldman Sachs Group Inc. said the price of iron ore will remain under $40 a ton for the next three years as China’s slowdown forces the global industry into a long period of hibernation.

It also extended to 10 years the amount of time it will take to sell off stocks it has purchased as part of its asset buying program, to help minimize the impact on share prices. In the end, it’s not the sort of extra buying that the market had hoped for, and I don’t rate it highly either.” It wouldn’t be the first time human traders were able to capitalize on the mistakes of computers. When a false report of explosions at the White House instantly wiped more than $136 billion off the value of U.S. stocks in April 2013, analysts blamed the plunge on programs that base trading decisions on news headlines.

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