Asian Stocks Halt Two-Day Rally as BOJ Disappoints Investors

Updated on

BOJ's Late Policy Move Roils Markets, Boosts Yen

Asian stocks fell, halting a two-day rally, as a plan by the Bank of Japan to purchase exchange-traded funds left investors disappointed and a slump in oil weighed on energy shares.

The MSCI Asia Pacific Index slipped 0.7 percent to 129.61 as of 4:01 p.m. in Hong Kong, after jumping as much as 0.6 percent after the BOJ announcement. The regional benchmark index pared this week’s gain to less than 0.1 percent, after jumping 3 percent over the previous two days as the U.S. Federal Reserve raised interest rates for the first time in almost a decade.

The BOJ said it will spend an additional 300 billion yen ($2.5 billion) for ETF purchases on top of the 3 trillion yen the bank already spends each year. Japan’s Topix index jumped as much as 2 percent on the news, only to drop 1.8 percent at the close as investors took a closer look at the central bank’s plan.

“This is unexpected, but compared to the previous so-called QQE, the size is considerably different,” said Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd. “At 300 billion yen, it’s on the scale of margin of error. The impact to the stock market will not be big.”

At 300 billion yen, it’s just a 10th of the size of the bank’s current ETF efforts, and intended to offset the market impact as the BOJ resumes selling from April of stocks it purchased from financial institutions.

Friday’s action wasn’t additional monetary easing in response to downside market risks, BOJ Governor Haruhiko Kuroda said at briefing in Tokyo after the two-day meeting. The central bank kept its main target for monetary stimulus unchanged, indicating confidence in the economy after data from capital spending to business confidence and unemployment exceeded expectations.

The move follows the Fed’s decision this week to tighten monetary policy, solidifying its divergence from other major central banks as policy makers in Europe and Japan emphasize measures to support growth.

The Standard & Poor’s 500 Index ended a three-day advance as a stronger dollar in the wake of the Fed’s rate increase weighed on commodity shares, with crude tumbling below $35 a barrel.

Energy shares led losses on the MSCI Asia Pacific Index, with Inpex Corp. sliding 2.6 percent in Tokyo as oil closed in New York at the lowest level in almost seven years after U.S. crude inventories surged. Fortescue Metals Group Ltd., the world’s fourth-largest iron-ore supplier, tumbled 6 percent in Sydney as Goldman Sachs Group Inc. said the price of iron ore will remain under $40 a ton for the next three years as China’s slowdown forces the global industry into a long period of hibernation.

Regional Gauges

Hong Kong’s Hang Seng Index fell 0.6 percent while the Shanghai Composite Index closed little changed. Taiwan’s Taiex index slipped 0.8 percent. Singapore’s Straits Times Index declined 0.5 percent. South Korea’s Kospi lost 0.1 percent. Australia’s S&P/ASX 200 Index added 0.1 percent and New Zealand’s S&P/NZX 50 Index increased 0.3 percent.

E-mini futures on the S&P 500 Index dropped 0.5 percent. The underlying measure fell 1.5 percent on Thursday, halting its longest winning streak since October, as investors moved past the Fed’s rate decision and returned their focus on the commodities rout and prospects for global growth.