Bank of Japan Surprises With More Stimulus

Andrew Klips |

On the heels of the U.S. Federal Reserve’s decision to introduce a third edition of quantitative easing and the European Central Bank unveiling its own bond buying program, the Bank of Japan’s board unanimously accepted a plan to boost its stimulus efforts to spark its sluggish economy. Wednesday morning the central bank said that it will increase the size of its asset purchases by 10 trillion yen ($126.7 billion) to a total of 80 trillion yen ($1.014 trillion). The plan includes purchases of T-bills and government bonds and is slated to be completed by the end of 2013.

Further, Japan’s main bank left its policy interest rate target unchanged at zero to 0.1 percent. Leading banks across the globe have been aggressively searching for additional solutions to shore-up fragile economic growth on top of keeping key interest rates at historic lows.

Less than one week ago, U.S. Fed Chairman Ben Bernanke disclosed an open-ended bond buying plan, widely referred to as “QE3,” that would entail the Federal Reserve buying $40 billion per month in mortgage-backed securities. The central bank of the States also extended “Operation Twist,” another monetary stimulus scheme that swaps short-term debt into longer-term treasuries designed to keep long-term borrowing costs low.

ECB president Mario Draghi has been vocal in saying that he will do “whatever it takes” to preserve the euro. Early in September, Draghi announced that the ECB’s plans to buy euro zone government bonds and stands ready to commence “outright monetary transactions,” so-called OMTs, in the secondary bond market.
Markets tend to respond favorably to news of economic stimulus. The Japan’s Nikkei closed ahead by 1.8 percent, Hong Kong’s Hang Seng advanced 1.3 percent, South Korea’s Kospi edged up 0.3 percent and Australia’s S&P/ASX 200 climbed 0.5 percent upon the release.

Investors will now be looking to China, whom already announced infrastructure projects on September 6 and 7 to grow its economy, to follow with additional monetary easing. China, the world’s second largest economy, has released a raft of data showing continued economic weakness, including a report from Beijing on Wednesday detailing a 1.4 percent drop to $8.33 billion in foreign direct investment in August. It was the ninth decline in the last ten months and highlights a spat between China and Japan over ownership of neighboring islands as well as global growth concerns. China’s economy is on track to grow the least amount in 22 years.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
SMU.UN:CA Summit Industrial Income REIT 6.12 0.03 0.49 25,100

Comments

Emerging Growth

Breathtec BioMedical Inc.

Breathtec Biomedical Inc is a medical diagnostics company. It is engaged in developing & commercializing breath analysis devices for the early detection of infections & life threatening diseases including cancers,…

Private Markets

WayBetter

The spark hit Jamie when he saw co-workers competing to lose weight. Instead of pizzas and subs, they were eating salads and jogging along the river. Some were sneakily leaving…

Cloudera

Cloudera offers enterprises a new data platform built on the Apache Hadoop open-source software package. Hadoop is a data-management platform that can consolidate data in a single repository for comprehensive…