Yen climbs as Bank of Japan temporarily delays huge asset buys

01/22/2013 3:34 pm EST


Jim Jubak

Founder and Editor,

Half a manju from the Bank of Japan today. And that has sent the yen up against the dollar.

The country’s central bank gave in to political pressure and raised its inflation target to 2% from 1% as “recommended” by Japan’s new Prime Minister Shinzo Abe.

But the bank delayed a huge program of asset purchases. The Bank of Japan will buy 13 trillion yen a month ($146.6 billion) in financial assets a month—but the program won’t begin until January 2014. (For context, the Federal Reserve’s current asset buying program totals $85 billion a month in the much bigger U.S. economy.)

That delay has disappointed markets, which had been looking for the bank to announce the immediate start to a yen-weakening stimulus plan.

The technical charts say that the yen could strengthen against the dollar for as long as two weeks and climb as high 86.80 before resuming its retreat. That would unwind much of the decline in the yen against the dollar of the last two weeks. The yen, which had been down 5.3% against a basket of nine developed-economy currencies this year, was last at 86.80 to the dollar on January 3.

But the thinking right now is that the decision to hold off until January 2014 is itself political and unlikely to hold up for very long. Bank of Japan Governor Masaaki winds up his five-year term in April. (Two of his deputies leave their positions in March.) That makes today’s 6-3 vote merely a temporary bump on the road to speedy implementation of a program of asset buying. Abe will have a chance to reshape the top ranks at the bank in a matter of two months or so and that will lead the bank to revisit today’s decision.

That’s why the reaction to today’s disappointment has been so tempered in Tokyo. The Nikkei 225 Index closed down just 0.35%. Shares of big exporters, which stand to gain the most from a weaker yen and which have led the Tokyo market higher in the last month, either retreated only modestly or actually continued to climb. Mazda Motor, for example, was even on the day and Casio Computer continued its advance, climbing another 1.8% on the day. Those stocks are up 101% and 48%, respectively, from November 13 through today’s close.
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