Bank of Japan Jumps on the Stimulus Bandwagon

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In a surprise move today the Bank of Japan held interest rates but added monetary stimulus, following suit with the US Federal Reserve. The BoJ announced additional monetary easing saying it was boosting an asset-purchasing fund by 10 trillion yen ($128 billion) to 80 trillion yen.

Following the announcement, the dollar edged up against the yen, trading at 78.95 yen, from about 78.78 yen before the decision.Shares also jumped, with the Nikkei 225 index climbing 1.32 percent, or 120.39 points, to 9,244.16.

The new measure came as Japan’s export-dependent economy struggles to right itself following a succession of problems, including the March 2011 earthquake and tsunami disaster, the European debt crisis, slowing global demand and the strong yen.

Pressure on the central bank to take additional easing steps increased after the European and US central banks took action.

At the start of the month the European Central Bank announced a massive sovereign bond buy up, brushing aside German opposition to unleash a so-called “big bazooka” against the debt crisis. The new program called “Outright Monetary Transactions” will hopefully ease the credit crisis in the EU.

A week later the Federal Reserve unveiled a new bond-buying program that it said it would not back away from until it is happy the economy is on the right track and unemployment is falling.

Yesterday, China said it faced “enormous difficulties” in meeting its trade targets for this year, as the world’s second-largest economy struggles amid a stubborn slowdown in global growth.

China’s economic growth weakened to an expansion of 7.6 percent in the second quarter through the end of June. The result marked the sixth straight quarter of weakening growth.

Data for July and August, including export statistics, have remained weak, as uncertainty in Europe over ongoing debt crisis and weakness in the United States weigh on the rest of the world.

China said earlier this month that the country’s total trade — exports and imports combined — rose by an annual 6.2 percent in the first eight months of this year, official figures showed.

That is below the target set earlier this year that aimed to maintain 10 percent annual growth in foreign trade in 2012. Exports in the month of August rose just 2.7 percent year-on-year to $178 billion, while imports fell 2.6 percent to $151.3 billion.

The government said last week it approved a package of measures aimed at boosting exports to “stabilize” foreign trade.

Investors seem to have cooled since the US Federal Reserve announcement last week, but hopes are with a concerted global effort and stimulus from all major nations that global growth will be kick started.

The Chinese also introduced a huge infrastructure program to help stimulate internal growth.

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About: FX Empire Analyst - Barry Norman

Barry produces a private Daily Market Review newsletter that is distributed around the globe to over 25,000 subscribers and recently published a book on Options Trading that is available from amazon.com

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