Why Did the BOJ Hold Off on More Stimulus?

The Bank of Japan (BOJ) stunned markets on Thursday after it made the decision to hold off on expanding monetary stimulus. The majority of economists expected the central bank to take further action to stem the yen’s growth.

The perplexing move drove the yen even higher against the dollar, and left stocks in Tokyo tumbling.

BOJ Governor Haruhiko Kuroda and his peers are waiting for the effects of negative interest rates to play out.

The inaction of the BOJ has many investors and economists wondering why they would hold off on expanding stimulus when Japan’s economy is already in a rut and consumer prices are falling at record paces. Profits are being hurt by a stronger yen.

But the move suggests that the central bank is placing its bet that its negative interest rate policy will boost lending.

The BOJ left three key things unchanged: its -0.1% rate, its 80 trillion yen target for the expansion of its monetary base, and its program to purchase risky assets, like stocks. The central bank also delayed its timeframe for reaching its inflation target of 2% to 2017. This is the third delay in 12 months.

Many economists are saying Kuroda’s move was the right call, as the negative interest rate policy was only implemented a few months ago. The response to such policies is often delayed, which means the bank will need to wait and see the effects of the policy.

Despite market disappointment, Kuroda’s stimulus has boosted bank lending, which has soared to its highest level since 2002.

The Topix declined 3.2% on the news, and the banking sub-index fell by 6.3%.

Sources close the matter say the BOJ may be considering a negative rate on certain loans to commercial lenders, but no specific timeframe was given, and no such move was made on Thursday.

Kuroda said that now it is time to watch the impact of its negative rate policy. He noted that the effects will be felt throughout the economy, and also said that he sees no limit to monetary policy.

With a hold on monetary policy, the focus is now on the Abe administration and the proposed supplementary spending package designed to boost growth.

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Daniel Simmons