Japanese shares soar, yen skids after BoJ stuns with fresh easing steps

Japanese stocks jumped more than 5 per cent and the yen skidded to nearly seven-year lows against the dollar on Friday after the Bank of Japan surprised markets with fresh easing steps that it called a pre-emptive move to stoke inflation.

The Nikkei stock average rallied 3.9 per cent after Japan’s central bank said it would purchase more shares of exchange-traded funds and real estate investment trusts, extend the duration of its portfolio of Japanese government bonds, and increase the pace at which it expands base money to “pre-empt manifestation’’ of risks.

“It was a total surprise that the BoJ eased further at this time given that BoJ executives have not voiced such pessimistic views lately. The move was apparently made in response to underlying weakness in prices,’’ said Junko Nishioka, chief economist at RBS Securities Japan.

“I think the move will be effective as it prompted a sharp drop in the yen. That will help boost import prices, which will in turn help bring inflation closer to the BoJ’s target,’’ she said.

Japan’s consumer inflation

Data released early on Friday showed Japan’s annual core consumer inflation slowed for a second straight month in September, adding to evidence the BoJ is likely to miss its price goal.

Before the BoJ’s surprise, markets were cheered by Wall Street’s surge late in the session on Thursday, after data showed surprisingly strong third-quarter US economic growth as the trade gap narrowed. But domestic demand slipped, hinting at some loss of momentum.

The data came a day after the US Federal Reserve surprised markets with an optimistic assessment of the US economy when it announced the end of its monthly bond buying stimulus programme.

Japan’s outperformance boosted shares outside of Japan, with MSCI’s broadest index of Asia-Pacific shares outside Japan add 0.7 per cent, putting it on track for weekly and monthly gains of more than 2 per cent.

GPIF to approve allocation targets

Japanese shares also got a lift from news that Japan’s Government Pension Investment Fund is poised to approve on Friday allocation targets which aim to raise the portion of Japanese shares to 25 per cent of its portfolio from the current target of 12 per cent, two government sources said.

“The consensus was that GPIF would go to 20 per cent Japanese stocks. The impact of 25 per cent will be strong, with a positive impact for stocks,’’ said Masayuki Doshida, senior market analyst at Rakuten Securities in Tokyo.

Japan’s jobless rate

But data released before the market showed Japan’s jobless rate rose in September and the availability of jobs fell for the first time in more than three years, suggesting the labour market is starting to lose some momentum. Japanese household spending also fell more than expected in September.

Against the yen, the dollar bought 110.59, up about 1.3 per cent on the day after rising as high as 110.69 yen. The euro edged down about 0.2 per cent to $1.2582.

Popular cross-trades, involving purchases of higher yielding currencies against the yen, soared after the BoJ easing, with Aussie/yen up 0.7 percent and the New Zealand dollar gaining 1.2 per cent against the yen.

In commodities trading, spot gold fell about 0.3 percent to $1,194.10 an ounce.

Brent crude skidded about 0.4 per cent to $85.86 a barrel. Ample supplies and a stronger dollar have pushed prices down more than 9 per cent so far in October, and on track for their biggest weekly drop since May 2012.

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