In stark contrast to market expectations of further intervention to stimulate a stagnating economy, the Bank of Japan opted to stand pat Thursday, triggering a surge in the Japanese yen and currency-related exchange traded fund.
The CurrencyShares Japanese Yen Trust (NYSEArca: FXY) jumped 3.2% Thursday as the U.S. dollar depreciated 3.0% to ¥108.2.
Meanwhile, the appreciating yen currency dragged on Japanese equities, with the iShares MSCI Japan ETF (NYSEArca: EWJ) off 4.4% Thursday, plunging below its 200-day simple moving average. Additionally, currency hedged ETFs underperformed, with the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) down 7.1%, breaking below its 50-day simple moving average.
Investors and market observers largely anticipated further stimulus measures to goad a slowing economy. However, the BOJ’s inaction at its April meeting defied expectations.
“Everybody was stunned,” Margaret Yang, a market analyst at CMC Markets, told the Wall Street Journal, adding that market volatility picked up again later in the Asian trading day as equally surprised investors in Europe reacted to the news.
This was not the first time the Japanese central bank caught the markets off guard. In January, the BOJ set negative interest rates on bank deposits only days after Bank of Japan Gov. Haruhiko Kuroda shut down the idea.
[related_stories]Kuroda argued that the central bank was still waiting to asses the effects of its recent negative interest rate policy before adopting further easing measures.
“There is plenty, plenty of room to push down the negative rate,” Kuroda told reporters. “There is no change in our approach that we are going to do whatever is necessary.”
Japanese market watchers will have to wait until June to receive further guidance from the BOJ.
“It is not strange to think that the BOJ’s policy board wants to ease monetary policy further at its next meeting in June when expectations about the U.S. Federal Reserve’s next move are expected to come to a consensus and most Japanese companies report their full-year earnings,” Ryota Sakagami, chief equity strategist at SMBC Nikko Securities, told the WSJ.
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CurrencyShares Japanese Yen Trust