Wild Swings in Nikkei, Yen as BOJ Disappoints Markets That Expected More QE

The markets expected the Bank of Japan to unleash lower yields further into negative territory at its Friday policy meeting.

Instead the board voted to keep rates unchanged and to maintain existing monetary base targets. But the BoJ did vote to increase equity ETF purchases and increased US dollar swaps.

This set of moves led to some wild moves in the Nikkei, and a 1.6% increase in the Yen vs. the US dollar.

Yen Surges

Wild Ride in Nikkei

The initial reaction was hugely negative. That was followed by a rebound to break even, another plunge, then a rally back to the green, all in a short time span.

Saxo bank chief economist Steen Jakobsen pinged me the key takeaway was the doubling of its US dollar loan facility is an admission of a dollar funding crisis but otherwise the rest of the policy statement was weak.

The Sydney Morning Herald labeled the actions Bank of Japan’s fizzer.

The Wall Street Journal says Bank of Japan Takes Modest Easing Action.

“The BOJ moves to buy more exchange-traded funds, but leaves a key rate and purchases of government bonds.”

The wild ride in the Nikkei is no doubt due to the initial negative reaction coupled with the fact the BOJ will increase its ETF purchases from 3.3 trillion yen to 6 trillion yen.

Why not just buy every company and be done with it?

Mike “Mish” Shedlock