The Bank of Japan expanded its asset-purchase program for the second time in two months, a move that failed to cheer investors as stocks slumped amid mounting evidence that the economy contracted last quarter.
The fund will increase by 11 trillion yen ($138 billion) to 66 trillion yen, the central bank said in Tokyo, acting hours after a report showed the biggest decline in industrial output since last year’s earthquake. Policy makers kept a separate credit loan program at 25 trillion yen.
The Nikkei 225 Stock Average closed 1 percent lower and the yen strengthened against the dollar as faltering exports and waning domestic demand bolster the case for the central bank to keep easing in coming months. Economy Minister Seiji Maehara attended his second BOJ meeting today and, in a joint statement with Governor Masaaki Shirakawa, said that the government “strongly expects” powerful easing until deflation is overcome.
“There is a high chance that the BOJ will have to ease again in January or February considering the political pressure and the slowing economy,” Chotaro Morita, chief strategist for fixed income at Barclays Plc in Tokyo, said before the meeting.
All but one of 27 economists surveyed by Bloomberg News had predicted easing, with the majority expecting a 10 trillion yen expansion. The bank expanded its asset-purchase fund by 10 trillion yen on Sept. 19, making today the first time since May 2003 that it has loosened twice in two months.
The yen gained 0.4 percent to 79.47 per dollar after declining more than 2 percent this month. Strength in the currency has eroded the sales and profits of the nation’s exporters, with the yen reaching a postwar high of 75.35 per dollar in October last year.
“It’s unusual for the BOJ to conduct easing for two straight months, but Shirakawa needs to take forward-looking policies to prevent Japan’s contraction from worsening,” said Mari Iwashita, a bond strategist at SMBC Nikko Securities Inc. in Tokyo.
The BOJ maintained its benchmark interest rate between zero and 0.1 percent and the amount of monthly bond purchases at 1.8 trillion yen. The asset purchase fund has been its main policy tool since October 2010.
Japan’s industrial production fell a more-than-expected 4.1 percent in September from the previous month, the steepest since last year’s earthquake and tsunami, data showed today before the bank’s meeting. Exports dropped 10.3 percent from a year earlier and retail sales rose less than forecast in September, data showed this month.
Honda Motor Co., Japan’s third-largest carmaker, yesterday cut its full-year profit forecast after Chinese consumers shunned Japanese brands amid a territorial dispute between Asia’s two-biggest economies. Canon Inc., Nintendo Co. and Kawasaki Heavy Industries Ltd. revised down their forecasts last week.
Japan announced 750 billion yen of fiscal stimulus on Oct. 26 amid concerns over financing more spending, as opposition lawmakers block a bill allowing the government to borrow 38.3 trillion yen for this year’s deficit amid a dispute over the timing of an election.
Central banks from Australia to South Korea have reduced their key rates this month. The International Monetary Fund trimmed its global growth forecast to 3.3 percent this year as the euro area’s debt crisis threatens the world economy.
In the U.S., stock markets were prevented from opening by Sandy, the Atlantic Ocean’s biggest-ever tropical storm. Strong winds and rain roared ashore late yesterday and disrupted commerce, transportation, utilities and government services from Boston to Washington.
The S&P/Case-Shiller index scheduled for release today may show property values in 20 U.S. cities increased 1.9 percent in August from a year earlier, according to the median estimate of economists surveyed by Bloomberg News.
In Europe’s day ahead, reports may show Spain’s gross domestic product contracted in the third quarter at a faster pace from a year earlier, Germany’s unemployment rate rose to an 11-month high of 6.9 percent in October and euro-area consumer confidence hovered near the lowest level since 2009.
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