Bazooka Unfired

Monetary market showed quick moves this week. United States Federal Reserve Board decided raising the target range for the federal funds rate to 1/4 to 1/2 percent on Thursday, finishing “zero interest policy.” As if being stimulated by U.S. policy change, Bank of Japan introduced supplemental policy for monetary easing on Friday. Although BoJ aimed to surprise monetary market, the prices in Tokyo stock market responded with confused up and down.

The decision of FRB to raise the federal funds rate for the first time in these nine and a half years was accepted as a positive sign in Japan. Nikkei Average jumped up by ¥303.65, marking ¥19,353.56 with expectation of preferable impacts of the policy change in U.S. Investors bought U.S. Dollar to seek high interest, dropping Japanese Yen to ¥122 for a dollar.

While it was worried that money flow from the world to U.S. would cause steep decline of emerging economy, monetary market looked like expecting no urgent change. “Concern on negative impact of rising federal funds rate on developing countries has already been recognized. The market is welcoming positive aspect of that,” said Minister for Economic Revitalization, Akira Amari.

But, the rally of Tokyo Stock Exchange did not last long. Right after the announcement of BoJ on Friday, Nikkei Average abruptly rose by ¥500 in five minutes. Then, realizing BoJ decision as partial adjustment, the average steeply declined, closing exchange of the day at ¥18,986.80.

New policy of BoJ was to extend average for redemption of purchased national bonds from 7 to 10 years to 7 to 12 years starting next month. That was based on an expectation that investment would be vitalized with low interest of long-term money rending, when BoJ raised the share of long-term national bond. The bank also announced that it would establish new purchasing share for Exchange-Traded Fund as much as annual ¥300 billion to increase money flow in the market.

Unfortunately, the announcement failed in surprising the market. “We estimated that this additional policy would be appropriate to firmly maintain the major monetary easing and to deliver regulatory measures without hesitation, if necessary,” told BoJ Governor, Haruhiko Kuroda. The assessment of the market was that the Friday announcement was only a preparation of the third Kuroda bazooka, following two monetary easing in April 2013 and October 2014. In addition, even skepticism over no third bazooka is spreading.