The Bank of Japan surprised the markets today by announcing that it was going to add to its existing stimulus program. The Bank of Japan is going to add liquidity at an 80 trillion yen annual pace, compared to an annual target of 60-70 trillion yen previously. Most economists were not expecting this move as the Bank’s Governor recently made relatively upbeat comments about the Japanese economy and the Bank previously gave the impression it was on hold for now.
The Bank of Japan was convinced to act as the risk of missing its inflation target had grown lately and inflation expectations had moderated. Falling oil prices and weak domestic demand was weighing on prices, according to the BoJ.
Dollar / yen demolished the previous high of 110.08 yen of October 1st to climb to a fresh near 7-year high of 111.51. Dollar / yen was trading around 109.30 around the close of US business the previous day. Euro / yen was trading a little below the 140 mark at 139.80.
There was more bad news for the yen after the country’s huge Government Pension Investment Fund decided it would raise the holdings of foreign stocks in its portfolio from 12% to 25%. The Nikkei stock index rose 4.83% on the day – nearly matching its best daily performance in 16 months.
Before the BOJ announcement, Japanese inflation and unemployment came in line with expectations, while household spending fell short of consensus estimates.
For the remainder of the day, key Eurozone data will be released in the form of flash inflation for October. With fears of deflation rising in the single currency region, headline inflation is expected to pick up to 0.4% year-on-year compared to 0.3% the previous month. Unemployment for September is expected to hold at 11.5%. In the United States, the Fed’s favorite inflation index, the Personal Consumption Expenditure price index for September, will come out.