Japanese Shares Edge Higher After BOJ Maintains Monetary Policy

BOJ Stands Firm but Are Its Policy Tools Depleting?

Shares in Tokyo edged higher, reversing losses after the Bank of Japan maintained its record stimulus program.

Gains in utilities and airlines offset a decline in oil companies and shippers, with the Topix finishing up after falling by as much as 0.6 percent prior to the BOJ decision. The margin was tight, with 914 companies advancing while 904 stocks fell. Earnings were also in focus, with Kyushu Electric Power Co. jumping after net income forecasts beat estimates, while Fanuc Corp. weighed on the Topix the most after its operating profit guidance was worse than expected.

SecurityPercent ChangePrice
Topix+0.01%1,393.19
Nikkei 225+0.1%17,442.40
Yen-Dollar+0.01%104.81

The central bank board voted to maintain its targets for controlling short- and long-term rates and its asset-purchase programs, while delaying the timing for reaching its 2 percent inflation goal, a move widely expected by economists. It kept its annual 80 trillion yen ($764 billion) bond-buying program unchanged. The Topix briefly rose 0.1 percent after the decision, while the yen fluctuated against the dollar.

“The outcome was largely in line with market expectations, including the pushback of the timing for meeting the inflation target,” said Hideyuki Suzuki, general manager at SBI Securities Co. in Tokyo. “But it’s a relief that the event has passed without much trouble, as some stayed wary over the possibility of things like more negative interest rates.”

The BOJ board voted to leave its goal for 10-year government bond yields at around zero percent, a decision made at its September meeting, and retained the policy rate on a portion of commercial bank reserves at minus 0.1 percent.

Less Pressure

Kuroda and his board face little pressure to act from markets, with the yen having dropped 4.6 percent against the dollar, while the Topix has risen about 3 percent since the last BOJ meeting on Sept. 21, and closed Tuesday at its highest level since April 25. Price swings in Tokyo equities have also become more subdued, with 50-day average volatility on the Topix falling to its lowest since July 2015.

“The BOJ appears to be wanting to sit on its September decision a bit, and see its impact,” said Yoshinori Shigemi, a global market strategist at JPMorgan Asset Management. “For banks, it’s good that the central bank didn’t do anything and left the level of negative interest rates unchanged, although the environment remains difficult for them.”

A Topix gauge tracking bank shares erased losses on Tuesday after the BOJ’s decision, while insurance stocks added 1.1 percent. Lenders have been whipsawed by the BOJ this year after the monetary authority surprised markets by adopting negative interest rates in January.

Bank shares are on course for a 25 percent drop in 2016, their worst annual return since the 2008 global financial crises. Still, the Topix gauge tracking lenders has recovered some of its losses since plunging to a July low on expectations the BOJ will opt to control yields rather than push them deeper into negative territory.

Oil Weighs

Energy stocks and exporters weighed on the Topix and shippers led declines, retreating from a six-month high. Oil explorer Inpex Corp. dropped 1.5 percent in Tokyo as crude prices held near their lowest close in more than a month.

The Topix Marine Transportation Index slumped 2.9 percent to lead declines. The measure had closed at its highest level since April 27 on Monday after Nippon Yusen KK, Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha Ltd. agreed to merge their container businesses.

It’s also one of the busiest times for Japanese earnings releases this week. Panasonic Corp. was among the biggest decliners on the Nikkei 225 Stock Average, losing 6.5 percent. The company lowered its full-year operating profit forecast by 21 percent as profitability at its solar panel and electronic components businesses fell and a stronger yen eroded its income from abroad.

Fanuc dropped 4.3 percent after forecasting an operating profit of 134 billion yen, missing analyst expectations for 147 billion yen for the year ending March 2017. Kyushu Electric Power Co. jumped 7.4 percent after forecasting 100 billion yen in operating profit this year, beating market consensus for 884 billion yen.

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