Japan central bank dominates global markets with monetary onslaught

TOKYO (REUTERS) - Japan's central bank bent global markets to its will on Friday, a day after announcing the world's most intense burst of monetary stimulus, putting the yen into a nose-dive and fuelling a surge in Japanese stocks to 4-1/2 year highs.

The yen sank across the board, registering its biggest daily fall against the dollar since Oct 2008 on Thursday, after the Bank of Japan under new Governor Haruhiko Kuroda vowed to inject about US$1.4 trillion (S$1.7 trillion) into the economy in less than two years, a dose of shock therapy to end two decades of stagnation.

Japan's Nikkei share average jumped 4.3 per cent in opening deals, extending Thursday's 2.2 per cent rise and breaking through 13,000 points for the first time since August 2008.

On Friday morning the 10-year JGB yield fell as much as 12 basis points to a record low of 0.315 per cent.

The BOJ's policy was viewed as a radical gamble to boost growth and end deflation. It is unmatched in scope even by the US Federal Reserve's own quantitative easing programme. The Fed may buy more debt, but the Japanese central bank's stimulus is much larger as proportion of the economy.

"Investors were justified in feeling shocked and awed," said Mr Stephen Jen, managing partner at SLJ Macro Partners in London, who estimated that Japan's programme was twice as large as the Fed's asset purchases when adjusted for GDP.

A smiling Kuroda told a news conference on Thursday that the BOJ was indeed embarking on an unprecedented plan of monetary easing.

"We took all available steps we can think of. I'm confident that all necessary measures to achieve 2 percent inflation in two years were taken today," he said.

The Fed and Bank of England have also embraced large-scale bond purchases in an effort to boost growth, while the European Central Bank said on Thursday it would keep policy loose for as long as necessary to revive the struggling euro zone economy.

Currency traders said they expected the dollar, last at 96.19 yen, could hit 100 in the months ahead, a level it last reached four years ago.

"It may not work but they will go down swinging," added Mr Bill Gross, founder and chief investment officer at giant bond fund PIMCO, said of the BOJ via his Twitter account.

"Sell yen."

A falling yen risks upsetting other Asian exporters who may lose competitiveness, and leave Japan open to accusations it is covertly devaluing the currency. Emerging economies will also be concerned about the potential flood of inflows as investors borrow cheaply in yen and then invest elsewhere, as they have done with the Fed's quantitative easing.

The BOJ will buy 7.5 trillion yen of long-term government bonds per month, roughly 70 percent of bonds sold in markets. It combined two bond-buying schemes, its asset-buying and lending programme and the "rinban" market operation, to buy longer-dated government bonds.

The central bank will also increase purchases of exchange-traded funds (ETFs) by 1 trillion yen per year and real-estate trust funds (REITs) by 30 billion yen per year.

Still, the monetary base, or cash and reserves at the BOJ, had already hit a record in March, but the huge pile of money has failed to end deflation or boost wages.

Kuroda brushed aside concerns that excess money printing will sow the seeds of an asset-price bubble, which was repeatedly mentioned by his predecessor.

"I don't see a risk of a sudden spike in long-term interest rates or the creation of an asset-price bubble," Mr Kuroda said.