Yen Surges on Moderate BoJ Stimulus
Are central banks at the limit of what markets consider to be effective tools?
A moderate stimulus package from the Bank of Japan overnight got the final trading day of the week off to a disappointing start, leaving traders to look towards the large number of earnings and data releases today to pick them up again.
Days like today once again make you question whether the central banks really are reaching the limits of what the markets consider to be effective monetary stimulus tools. With interest rates already negative and government bond purchases at or near the limit of what is feasible, central banks have had to pursue other unconventional tools which have failed to get the markets too excited.
This isn’t necessarily a bad things and just because markets don’t get too excited by the prospect of ETF purchases rising by ¥6 trillion compared to ¥3.3 trillion before, or by a lending program for local companies doubling to $24 billion to provide support for overseas activities, it doesn’t mean they won’t be effective.
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 in order to overcome this low inflation environment. It’s not just Japan that has started down this route, the UK is expected to embark on more fiscal stimulus alongside further easing measures and Mario Draghi has repeatedly highlighted the mildly expansionary fiscal stance in the euro area as being supportive alongside the ECBs accommodative position.