TOKYO • The Bank of Japan (BOJ) shocked markets yesterday as it held fire on fresh stimulus measures, sparking questions about whether there is anything left in its policy arsenal to kick-start a sliding economy.
Governor Haruhiko Kuroda opted for more time to assess the impact of negative interest rates, leaving three key easing tools unchanged, namely the 0.1 per cent negative rate on a portion of the cash banks park at the BOJ, a programme to buy riskier assets including stocks and the 80 trillion yen (S$992 billion) annual asset-buying programme.
Dealers were caught off guard by the decision, which sent the yen skyrocketing, especially after another set of weak economic data in the morning had turned up the heat on policymakers to ignite stalling growth.
"(Mr) Kuroda wanted to make it clear that the BOJ won't make monetary policy driven by market demands. It's too early to make another move after implementing the negative rate a couple of months ago," said Mr Kyohei Morita, chief Japan economist at Barclays. "The important message is that the BOJ will be data-dependent and I expect the (authorities) will bolster stimulus in July as they review the outlook on inflation."
Shares in Tokyo tumbled, reversing an earlier gain, after the BOJ announcement, with the Topix Index declining 2 per cent to 1,357.05 at 1.15 pm in Tokyo. The Nikkei 225 Stock Average retreated 2.4 per cent to 16,871, while shares in Taiwan, Malaysia and China also declined.
The yen surged 1.9 per cent to 109.35 per US dollar. South Korea's won rose the most in a week and China's yuan strengthened.
"It's a total shock," said Mr Nader Naeimi, the Sydney-based head of dynamic markets at AMP Capital Investors. "From currencies to equities to everything - you can see the reaction in the markets. I can't believe this. It's very disappointing."
Japan's economy has largely defied years of central bank and government remedies aimed at boosting prices as well as broader activity.
With monetary policy on hold, attention now turns to the administration of Prime Minister Shinzo Abe and discussions of a supplementary spending package to help shore up growth. Mr Abe also has yet to decide whether to postpone a sales- tax hike slated for April next year.
Mr Michael Every, an analyst with Rabobank International in Hong Kong, said the markets are saying the Japanese have to do more. "They are already doing a ludicrous amount, but clearly it is not enough."
Hours before the BOJ announcement, data for March underlined the struggle policy makers are having to fan reflation. Consumer prices, excluding fresh food, dropped the most in three years, household spending slid and industrial production capped a soft rebound in March.
The central bank pointed to weakness in overseas markets and the impact of deadly earthquakes in southern Japan this month.
AGENCE FRANCE-PRESSE, BLOOMBERG