Why Bank of Japan Dipped Into Bag of Small Tricks

The central bank underwhelms overexcited expectations but promises some needed introspection

By Anjani Trivedi

The Bank of Japan 8301 -1.66 % is retreating into some much-needed introspection. And while it prepares to do this, it threw markets a not very meaty bone to chew on.

The central bank on Friday underwhelmed overexcited expectations for yet another big bang of monetary stimulus. The Bank of Japan announced a paltry 3 trillion yen ($28.5 billion) increase to its purchases of exchange-traded funds to 6 trillion yen in a bid to boost asset prices. It also doubled down on a relatively minor U.S. dollar lending facility to give Japanese companies a nudge to buy assets overseas.

Markets seem to have taken the disappointment in stride, at least early on. Stocks rose, no doubt helped by news of the ETF purchases. Banks and insurers did best, with investors relieved that negative rates weren’t being taken lower. The yen did strengthen somewhat but remains weaker than it did in the throes of Brexit’s mayhem.

The BOJ’s limited actions Friday were telling of the bank’s limits in practical terms. It didn’t boost its already massive bond-buying, possibly because of diminishing returns and because it is reaching its limits it terms of supply. Other asset markets are too small for the central bank to step into in a big way. Negative rates, unveiled in a shock manner in January, haven’t gone down well. ETFs were one safe corner to tap.

A slew of fresh economic indicators points to Mr. Kuroda’s conundrum. Inflation continues to head away from the bank’s 2% target, despite ever-tightening labor markets. The unemployment rate fell to its lowest point in decades, and the job-to-applicant ratio rose. But there are no signs of wage increases.

The Bank of Japan’s intention to reflect on its broader project is no doubt aimed at figuring out why it has done so much yet accomplished so little, especially when it comes to households. New strategies might include ways the BOJ can bolster Prime Minister Shinzo Abe’s imminent—and possibly large—stimulus package. News of the fiscal package this week may in fact have taken pressure off Mr. Kuroda to reach deep into his bag of policy tricks to prove his might. A moment’s insight could be worth a lot.

0 comentarios:

Publicar un comentario