Japan's Nikkei soared to a seven-year high and the yen tumbled to its lowest since early 2008 against the dollar this morning, as the Bank of Japan unexpectedly eased monetary policy due to concerns that a decline in oil prices would weigh on consumer prices and delay a shift in sentiment away from deflation.
The BOJ decided to raise its monetary base target to an annual increase of ¥80T yen ($724.5B), from ¥60T-70T.
The Nikkei surged 5.1% to 16,462, its highest since November 2007, while the dollar is up 1.5% to ¥110.84, its highest since January 2008.
The Japanese Government Pension Investment Fund is the world's largest pension fund with more than $1T in assets. It's no secret the fund's managers are planning to cut holdings of JGBs and boost allocations to domestic equities (among other assets), but the question is how much.
Expectations are for the GPIF to cut its JGB weighting to 40%, but chatter today says the fund plans to go as low as 25%, while ramping its Japanese stock holdings all the way to 25%.
Reuters reported yesterday that the GPIF hasn't waited for its review to be completed and has already cut JGB holdings down to just over half the portfolio, but it's not immediately clear where the fund has reallocated that money.
"Private consumption appears to be pausing recently."
"Business investment shows some weak movements recently, while it is on the increase."
"Although weakness remains for the time being, the economy is expected to recover, supported by the effects of the policies, while employment and income situation improve. However, attention should be given to the downside risks of the Japanese economy such as lengthening of the reaction after a last-minute rise in demand and slowing down of overseas economies."
The Nikkei has slumped alongside Western markets over the past few weeks - down more than 10% - but gained 4% overnight following Friday's big rally in the States.
Also at work is a published report saying Japan's $1.2T Government Pension Investment Fund (GPIF) will boost its allocation target for domestic shares to about 25% from 12%. Foreign holdings of stocks and bonds will be lifted to a combined 30% from 23%, while holdings in JGBs will be cut to 40% from 60%.
The GPIF has been expected to announce a higher domestic stock target, but the 25% figure is likely toward the top end - if not exceeding - of market expectations.
Asian stocks trade mixed as a 14-year low in U.S. weekly jobless claims and talk of the Fed possibly extending QE helps provide balance to concerns about a possible recession and deflation in Europe, the Ebola scare, China's slowdown, and Japan's floundering economy.
The Nikkei closes -1.4% while Japanese bond prices rise, with the two-year yield dropping 3.6 bps to a record low of 0.005%.
"We need to see a period of better data from the U.S., and especially Europe, for markets to really calm and volatility to cool," says market strategist Chris Weston.
Nymex crude is +0.2% to $82.86 and Brent is +0.1% to $85.89, but the latter is still headed for a fourth consecutive weekly loss.
Following the Bank of Japan's two-day policy review, the central bank kept its massive monetary stimulus intact but offered a bleaker view on factory output due to a hard-hitting sales tax increase in April.
As expected, the BOJ will retain its pledge of increasing base money at an annual pace of ¥60T-70T ($547B-$638B) through purchases of government bonds and risky assets.
Policymakers stuck to their view that the economy will resume a moderate recovery and achieve the bank's 2% inflation target next year without more monetary easing.
The Nikkei had its worst day in seven months overnight, plunging 2.6% following the ugly session in the States. Plunging itself for a few weeks now, the yen (NYSEARCA:FXY) put in a positive session, rising 0.25% vs. the dollar to ¥108/63.
Japan's economy took another big hit in August, with figures displaying annual household spending plunging 4.7%, falling for a fifth straight month. Trade ministry data also shows industrial output dropping 1.5% in August.
The effects of the April 1 sales tax hike to 8% from 5% continue to take a toll on the country's economy, as it shoots for its 2% inflation goal by around mid-2015.
The Bank of Japan is in no mood to deploy additional easing anytime soon, although a weakening yen will make that target very difficult.
Akira Amari, Japan's Minister for Economic Revitalization, has indicated that a second increase in consumption tax will go ahead as planned, saying it is necessary to meet the rising costs for social security and the country’s budget deficit.
Weeks of disappointing data previously caused some advisers to Prime Minister Shinzo Abe to call for a delay in the increase to 10%, due to take effect next October, arguing that the first rise in April, from 5% to 8%, had taken too heavy of a toll.
Amari says that extra monetary and fiscal stimulus will ensure that the tax hike will not endanger the country’s recovery. The government will also offer tax breaks for small businesses to spur capital spending.
Japanese shares rose for the fifth straight session today, led by exporters on the yen's weakness.
The Nikkei hit a eight-month high, climbing 0.3% to 15,948.29, its highest close since Jan. 8. The Topix rose 0.2% to a six-year closing high at 1,313.72, while the JPX-Nikkei Index 400 gained 0.2% to 11,905.53.
Revised figures now show that Japan's real GDP shrank an annualized 7.1% between April and June, topping the 6.8% fall reported two weeks ago, due to a bigger than expected decrease in capital expenditure and decline in consumer spending.
The contraction marks the country's biggest slump since the first quarter of 2009, and puts pressure on Prime Minister Shinzo Abe's decision, expected by year-end, on whether to proceed with a scheduled second increase in the sales tax to 10%.
Japanese shares soared today, led by exporters and the yen slipping to a seven-month low against the dollar. Traders said a planned cabinet reshuffle by Prime Minister Shinzo Abe also supported sentiment.
The Nikkei hit a seven-month high, climbing 1.2% to 15,668.60. The Topix rose 1.1% to 1,297, while the JPX-Nikkei Index 400 gained 1.1% to 11,763.89.
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