The Bank of Japan announced Friday that it will maintain the quantitative easing program and increase purchases of Japanese equities through exchange traded funds. However, market observers were unimpressed by the extended measures to combat a prolonged growth stunt.
Japanese equities weakened Friday, with the Nikkei 225 index falling 1.9% to 18,986.8, after the BOJ announced adjustments to its stimulus measures, including plans to for acquiring ¥300 billion, or $2.45 billion, in ETFs, reports Leika Kihara for Reuters.
BOJ Governor Haruhiko Kuroda argues that the small changes will allow the central bank to sustain or expand stimulus more easily. However, observers are not convinced.
“This is the type of incremental move that Kuroda previously said he opposes,” Hiroshi Shiraishi, senior economist at BNP Paribas Securities, told Reuters. “It suggests that the BOJ has reached the limit of its current quantitative easing and that it cannot expand easing by a large amount.”
After the country’s long struggle to stimulate inflation and growth, the small policy changes cast doubt on the central bank’s effectiveness to bolster the economy.
“The BOJ had never imagined that it would need to continue with QQE for this long,” Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley, told Reuters. “Today’s step marks a shift from shock therapy to a long drawn-out struggle in its efforts to achieve 2 percent inflation.”
The BOJ’s move is seen as a way to pressure companies into shifting more of their record profits to wage hikes and new investments to help counter deflationary pressures. The central bank stated it would target ETFs that track the JPX-Nikkei 400 Index.
The JPX-Nikkei 400 Index was launched in January 2014 as a means of revitalizing the Japanese equity market. The JPX-Nikkei 400 Index employs a rigorous screening process based on return on equity, cumulative operating profit and market capitalization to select high-quality, capital-efficient Japanese companies.
U.S. ETF investors can also track the benchmark index through relatively new offerings, including the Deutsche X-trackers Japan JPX-Nikkei 400 Equity ETF (NYSEArca: JPN) and iShares JPX-Nikkei 400 ETF (NYSEArca: JPXN). However, JPN was down 2.2% and JPXN was 1.4% lower after the BOJ’s lackluster announcement on Friday.
Meanwhile, the CurrencyShares Japanese Yen Trust (NYSEArca: FXY) rose 1.1% Friday, with the U.S. dollar dipping 0.9% to ¥121.4, as traders turned to safe-haven assets. [Currency ETFs That Provide Port in Stormy Markets]
Currency-hedged JPX-Nikkei 400 ETFs faired slightly better than the non-hedged counterparts as the yen strengthened. On Friday, the Deutsche X-trackers Japan JPX-Nikkei 400 Hedged Equity ETF (NYSEArca: JPNH), the currency-hedged equivalent of JPN, fell 2.0% and the iShares Currency Hedged JPX-Nikkei 400 ETF (NYSEArca: HJPX), the currency-hedged version of JPXN, dropped 1.2%.
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Max Chen contributed to this article.