BOJ Refrains From Further Action

Investors in stocks have become somewhat addicted to stimulus measures from central banks. The central banks have pumped vast sums of money into their respective economies in a collective bid to improve liquidity within the financial sector such that banks will lend money to businesses and boost economic activity – a kind of fiscal defibrillation to flat-lining growth, if you will. The central banks have got the economic heart beating again, but the patient remains in intensive care with the constant risk of a relapse.

Central banks have injected money by asset purchases such as government bonds. The idea is that the commissions financiers charge for such purchases will boost liquidity and the purchases themselves often see short-term bonds exchanged for longer-term bonds, driving down their yields and so making the long-term cost of borrowing cheaper.

Markets have rallied since the start of the year, but consistently fall-back when analysts suggest that a central bank may be planning to throttle back from its stimulus measures. The latest bank to disappoint was the Bank of Japan which has declined to intercede in current circumstances, ruling out an intervention unless borrowing costs spike. The decision was attributed to a decline in all of the major markets on Tuesday. Perversely, the falling stock markets tend to push the value of the Yen up against other major currencies, but at the moment both the markets and currency values are experiencing considerable volatility.

Japan’s Q1 performance was corrected upwards from 0.9 to1% growth. The BOJ expects the economy to “return to a moderate recovery path” which explains why they deemed that further intercession is not currently required. The central banks must be cautious about their stimulus measures for fear of unleashing significant inflation in global economies.