Yen soars, Asia stocks hit as Bank of Japan frustrates

The yen soared Friday as the Bank of Japan’s small adjustments to its stimulus programme disappointed traders who had expected a huge boost to its arsenal.

However, Japan’s Nikkei index ended higher, with financials cheered that the bank did not cut borrowing costs further into negative territory, but most other regional markets retreated.

After weeks of anticipation that the central bank would pump fresh cash into the economy, policymakers said only that they would boost its exposure to riskier investments, leaving a massive 80 trillion yen annual asset-buying programme unchanged.

“The BoJ decision failed to meet the market’s high expectations,” Khoon Goh, head of Asia research at Australia & New Zealand Banking Group in Singapore, told Bloomberg News.

He added that while governor Haruhiko Kuroda indicated the bank could unveil fresh measures at its September meeting, “overall this is a huge disappointment for markets”.

The news sent the dollar tumbling to below 103 yen at one point from 104.20 yen earlier in the day, and well off the levels above 107 yen touched last week. In the afternoon it was at 103.50 yen, while the euro bought 114.51 yen from 116.60 yen.

The Nikkei stock index sank almost two percent at one point but bounced back to end 0.6 percent higher.

Among other markets Seoul sank 0.2 percent and Hong Kong was off one percent in the afternoon while Shanghai ended 0.5 percent down.

Singapore tumbled 1.2 percent but Sydney was up 0.1 percent.

– ‘New phase’ –
The BoJ announcement came days after the government in Tokyo launched a fresh programme worth 28 trillion yen to kickstart the Japanese economy.

World markets soared in July as Britain’s shock vote to leave sparked promises of support from central banks and governments in a bid to fend off a feared hit to the global economy.

The need for more support was highlighted Friday by data showing core Japanese consumer prices fell for a fourth straight month in June, the latest sign that Prime Minister Shinzo Abe’s drive fire inflation is struggling to gain traction.

Craig Erlam, senior market analyst, at OANDA, said: “Perhaps the days of investors looking to these central banks to provide a quick fix currency depreciation are broadly behind us and a new phase of constructive monetary easing combined with actual fiscal spending is what is needed.”

On oil markets both main contracts were headed for a seventh straight day of losses as worries about a global supply glut return to the fore.

Brent and West Texas Intermediate each lost 0.5 percent and were headed towards the $40 mark, well down from the 2016 peaks above $50 at the start of June as the crucial US holiday driving season comes to an end and temporary disruptions to output in Canada and Nigeria ease.

– Key figures around 0700 GMT –
Tokyo – Nikkei 225: UP 0.6 percent at 16,569.77 (close)

Hong Kong – Hang Seng: DOWN 1.0 percent at 21,951.61

Shanghai – Composite: DOWN 0.5 percent at 2,979.34 (close)

Euro/dollar: UP at $1.1086 from $1.1076

Pound/dollar: UP at $1.3188 from $1.3166

Dollar/yen: DOWN at 103.50 yen from 105.32 yen

New York – DOW: DOWN 0.1 percent at 18,456.35 (close)

London – FTSE 100: DOWN 0.4 percent at 6,721.06 (close)