Japan Earmarks Billions to Help Prod Its Companies

23 Dec 2015 | Author: | No comments yet »

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

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. Asian stocks fell, halting a two-day rally, as a plan by the Bank of Japan to purchase exchange-traded funds left investors disappointed and a slump in oil weighed on energy shares. Wrapping up their last meeting of the year, central bank policymakers added a new plan to boost their holdings in firms dedicated to capital investment and hiring. 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 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. 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. 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.

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 BOJ said it will spend an additional 300 billion yen ($2.5 billion) for ETF purchases on top of the 3 trillion yen the bank already spends each year. 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. The move follows the Fed’s decision this week to tighten monetary policy, solidifying its divergence from other major central banks as policy makers in Europe and Japan emphasize measures to support growth.

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.

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. The underlying measure fell 1.5 percent on Thursday, halting its longest winning streak since October, as investors moved past the Fed’s rate decision and returned their focus on the commodities rout and prospects for global growth.

The Standard & Poor’s 500 Index recovered its losses within three minutes as investors determined the report, from a hacked Twitter account of the Associated Press, was incorrect. “The wording about ‘establishing a new program for purchases of exchange-traded funds’ is extremely misleading,” said Daisaku Ueno, the chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo. “As people started to realize that only the details had been tweaked, and the total package was unchanged, the yen weakness rapidly reversed.”

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