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Market Update

Bank of Japan Embarks on Bold Experiment, Nikkei in 5% Reversal


Author: Hiruki Nakamura
ticker.com
Last Update: 9:47 AM ET April 04 2013

5:30 PM Tokyo – Bank of Japan embarked on bold experiment to end economic stagnation of two decades and doubled its asset purchase program and increase monetary base in two years. Economists fear that the latest experiment will create real estate and securities price bubble in Japan but financial markets surged.

Bank of Japan embarked on a bold new experiment to revive prices and end economic stagnation that has sapped the nation for two decades.

Governor Haruhiko Kuroda at the end of its first policy meeting of Bank of Japan announced sweeping changes in monetary policy.

The central bank increased its bond purchase immediately to 7.5 trillion yen or $78 billion a month and also consolidated various other asset purchase programs.

Kuroda said central bank shifted its focus to monetary base from overnight money market call rate and double the money in circulation in two years.

The rapid and large changes in monetary policy surprised the market and investors reversed the early decline of 2% in the benchmark Nikkei index to a rise of 2.7% at close.

Bank of Japan will increase its holdings of exchange traded funds by 1 trillion yen a year and REITs by 30 billion yen a year.

Kuroda also suspended the limit on how much bonds government can buy, a key step that releases central bank from its self-impose limit of bond holdings below the amount of cash in circulation.

The yen decreased against the dollar and closed at 94.52.

Though the dramatic shift in monetary policy was expected and welcomed by financial markets, the move is not approved by former central bank officials.

The central bank’s plan to increase inflation and increase prices of non-food items may back fire because prices have not increased 2% in any year in 16 years.

The Nikkei 225 Stock Average advanced 272.34 or 2.2% to 12,634.54 and the broader Topix Index climbed 27.33 or 2.7% to 1,037.76.

Stocks in Review

Toyota Motor Corp climbed 135 yen to 4,925 yen and Honda Motor Co. jumped 120 yen to 3,645 yen and Nissan Motor Co Ltd advanced 23 yen to 912 yen. Yamaha Motor Co Ltd rose 5 yen to 1,215 yen. Mitsubishi Motors Corp added 2 yen to 99 yen.

Nippon Steel jumped 8 yen to 224 yen and JFE Holdings Inc soared 87 yen or 5.3% to 1,733 yen.

Sony added 3 yen to 1,573. Canon Inc slipped 30 yen to 3,240 yen and Nikon gained 18 yen to 2,148 yen. TDK Corp fell 5 yen to 3,200 yen. NEC climbed 9 yen to 254 yen.

Nintendo Co. Ltd advanced 110 yen to 10,060 yen.

Fanuc Corp. climbed 300 yen to 14,580 yen and Komatsu Ltd up 7 yen to 2,087 yen. Hitachi Construction Machinery Co increased 22 yen to 1,971 yen.

Softbank Corp gained 35 yen to 4,520 yen.

FamilyMart Co Ltd, the convenience chain operator jumped 125 yen to 4,360 yen and Lawson climbed 220 yen to 7,250 yen. Ito En Ltd rose 56 yen to 2,262 yen.

Seven & I Holdings Co increased 100 yen to 3,090 yen. Fast Retailing Co. closed unchanged at 35,650 yen and J. Front Retailing Co. Ltd gained 21 yen to 733 yen.

Mitsubishi UFJ Financial Group surged 30 yen or 5.5% to 578 yen and Sumitomo Mitsui Financial Group soared 245 yen or 6.6% to 3,960 yen. Dai-Ichi Life dropped 0.9% to 118,000 yen. Nomura Holdings, Inc climbed 19 yen to 579 yen.

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Sources: Data collected by 123jump.com and Ticker.com from company press releases, filings and corporate websites. Market data: BATS Exchange. Inc