Is that it? Bank of Japan disappoints

Aug 03, 2016, 00:24

Investors are grappling with the scope for further action by both the central bank and government as they try to stoke inflation and revive the Japanese economy.

The data comes hours before the Bank of Japan concludes a closely watched two-day rate review ending on Friday, with near-consensus in markets that it will deploy additional stimulus to match the government's planned big spending package.

The dollar was down a yen on Friday at 102.825 and during trading and the Nikkei average tumbled almost 2 per cent, after the BoJ's decision fell short of expectations.

The Japanese yen surged against the USA dollar after the announcement, with the dollar-yen pair falling as low as 102.85, compared with around 103.75 immediately before the decision.

German 10-year bonds halted a two-day advance after the Bank of Japan kept its key monetary tools unchanged, in a decision that disappointed investors who predicted a bigger increase in stimulus from the Asian nation.

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JAPAN SURPRISE: Japan's central bank ended a policy meeting Friday by announcing it will expand purchases of exchange traded funds from financial institutions to help inject more cash into the world's third-largest economy and pursue its 2 percent inflation target.

Investors are now looking ahead to the release of USA economic growth data or the second quarter gross domestic product figures due later in the day.

The benchmark 10-year JGB yield rose briefly to minus 0.170 per cent, its highest since June 24, as the BOJ held off on expanding bond purchases. "Increasing ETF purchases makes no contribution to achieving 2 per cent inflation".

Japan's Nikkei .N225 , which swung between gains and losses right after the announcement, was last trading down 1.5 percent. Bullion has risen 1.2 per cent in July, its second straight monthly gain, and is heading for its first weekly gain in three.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.64 per cent, sliding back from its highest level since August 11 struck earlier in the day. It hit a 14-month high on Wednesday.

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Investors awaited the release of the stress test results on European banks on Friday night.

The dollar was half a percent lower against a basket of its peers at 96.289, having hit set a 2-week low at 96.216.

Spot gold was up 0.4 per cent at $1,341.16 an ounce at 0430 GMT.

Yields on the benchmark U.S. Treasury note US10YT=RR pushed below 1.5 percent on the GDP data, with its price rising 10/32 and the yield falling to 1.4753 percent.

Elsewhere in markets, oil prices fell to three-month lows, with the US benchmark now down more than 20 percent from this year's peak on growing worries that the world might be pumping more crude than needed.

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Brent crude oil futures fell 40c to $42.30 per barrel.

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