“Total shock” at interest rate decision

Experts expected stimulus, particularly relating to ETF purchases – but reality has been branded “disappointing”

While the US Federal Reserve made a completely predictable interest rate announcement yesterday, there was significant shock after the Bank of Japan chose to maintain its monetary policy.

The move confounded expectations which had suggested the central bank would add to its record stimulus. Of particular shock was the bank’s decision to keep bond buying and exchange traded fund purchases unchanged.

Speaking to Bloomberg about the announcement, Nader Naeimi, from AMP Capital Market Investors, described the decision as a “total shock”. He said “from currencies to equities to everything – you can see the reaction in the markets. I can’t believe this. It’s very disappointing.”

Among economists surveyed last week, 23 of 41 expected the Bank of Japan to add to its stimulus with 19 predicting ETF purchases would increase.

Andrew Clarke of Mirabaud Asia Ltd told Bloomberg that “investors are disappointed” and that many had been “wrong-footed” by the move.

However, others have pointed out that the reaction from investors is perhaps overblown with Cameron Duncan, of Shaw and Partners, telling the newswire that “it’s probably consistent that they haven’t done anything because they eased three months ago” highlighting that the Bank of Japan is generally conservative and it is likely to wait longer to see what impact that move will have, if any.

The central bank actually introduced a negative rate of -0.1 per cent on a portion of lenders’ reserves despite outlining late last year that it would buy an additional 300 billion yen in ETFs in an effort to offset its plans to sell shares in financial institutions.