The Bank of Japan took markets by surprise by doubling the incentives whose aim is to spur bank lending in the country.
The move had immediate effect by weakening the Japanese yen and boosting the Nikkei 225 index on the Tokyo stock exchange. The central bank hopes that the increased lending will stimulate economic growth. It will expand two programs where it offers fixed-rate loans at rock-bottom interest rates to commercial banks. It will also lengthen the duration of the loans, making it easier for financial institutions to profit even in an environment where interest rates are close to zero. Nevertheless it should be emphasized that Bank of Japan did not increase its monthly asset purchases volume.
Despite the fact, the new measures are another example of unconventional set of monetary easing programs that are undertaken by the BOJ in order to escape from the decade-long stagnation that cripples the Japanese economy.
The Nikkei index rose by more than 3%, which helped traders to reverse the losses incurred during the last two weeks.
At the same time the yen fell to 102,74 against the US dollar, the lowest level in six weeks. According to many analysts the current action’s aim is to prevent weakness of the stock market until the current lending program expires in the end of March.
While the bank lending in Japan has shown a decent increase during the last year, large corporations are still holding a record level of bank reserve – more than 220 billion yens.
The BOJ’s move caught the market by surprise because speculation for any additional action had been waning as a result of a series of bullish remarks by central bankers about the economy.