Japan’s central bank’s stimulus programme coinciding with the Fed’s move in the opposite direction shook markets on October 31
The yen saw its worst day in 18 months at the end of October and crashed to a seven-year low against the dollar on November 3, as a result of its efforts to reverse decades of slow growth and gradual deflation. In an unexpected turn of events, the Bank of Japan decided to expand its already sizeable stimulus programme, which involves drastic loosening of monetary policy and the purchase of long-term Japanese government bonds.
BoJ’s stimulus endeavours coincide with the Federal Reserve’s movement in the opposite direction, with the latter declaring the end of its quantitative easing programme, which began in 2008. The announcement had been a long time coming and, in a statement, improvements were cited across the board, with inflation and unemployment reduction targets having been met.
Effectively, the US dollar was the sole net beneficiary of these developments
The euro also fell to a two-year low against the US dollar, where it is expected to stay pending an ECB policy review on November 6, and the Australian dollar was down against the greenback following the release of disappointing residential construction figures. Effectively, the US dollar was the sole net beneficiary of these developments.
Japan shocked markets again when its Government Pension Investment Fund (GPIF) unveiled plans to increase its holdings of foreign and domestic assets. The GPIF said it would raise the share of its assets in both Japanese and overseas stocks by more than 10 percent each.
Investors have claimed Japan’s move will encourage other central banks to adopt similar policies, and most are keeping their eye on the ECB until it meets with the Bank of England on Thursday. General sentiment was that the BoJ’s action was expected, just not right now, and the remarkable role reversal baffled forex experts and temporarily jolted global markets.