The Bank of Japan unveiled plans Thursday to pump huge amounts of money into the financial system in order to spur spending and borrowing in an economy that has suffered from growth-crippling deflation for years. The central bank said it wanted to double the money supply and achieve a 2 per cent inflation target within about two years.
"The Nikkei is off to the races, continuing its strong momentum from yesterday's trade and breaking to levels not seen since 2008," said Stan Shamu of IG Markets in Melbourne.
The BOJ's plans include buying $530 billion a year in government bonds. BOJ governor Haruhiko Kuroda described the scale of monetary stimulus as "large beyond reason," but said the inflation target would remain out of reach if the central bank stuck to incremental steps.
The sweeping shift in monetary policy came as a surprise to analysts, even though Kuroda has vowed to do whatever necessary to break Japan's economy out of its deflationary slump. Falling prices have crippled growth in the world's No. 3 economy for the past two decades.
"The size of monetary easing announced yesterday far exceeded expectations," said analysts at DBS Bank Ltd. in Singapore in a commentary.
The Nikkei 225 in Tokyo soared 3.8 per cent to 13,109.58, its highest level since August 2008. The benchmark has soared 25 per cent this year, rejuvenated by Prime Minister Shinzo Abe's election in December and enthusiasm for his economic and monetary program that favours a massive expansion of the money supply to create inflation and jolt Japan out of its slump.
The central bank's announcement dragged down the yen, giving a boost to shares of Japan's powerhouse manufacturers. A cheaper currency makes Japanese goods less costly for Americans and other foreigners and raises the value of repatriated profits. Nissan Motor Co. jumped 7.2 per cent. Ricoh Co. advanced 6.1 per cent. Komatsu soared 7.6 per cent. Japanese banks also benefited. Mitsubishi UFJ Financial Group gained 6.4 per cent.
The dollar rose to 97.06 yen from 96.13 yen late Thursday. The dollar was at about 92.80 before the BOJ's two-day policy meeting ended with its dramatic announcements Thursday. The dollar stood at around 80 yen before Abe's Dec. 16 election.
Elsewhere in Asia, however, stock markets sagged after a report showed the number of Americans seeking unemployment aid rose to a four-month high of 385,000 last week. The government will issue its employment report Friday, which investors look at closely for insight into how the U.S. economy is doing.
Hong Kong's Hang Seng tumbled 2.4 per cent to 21,804.15. South Korea's Kospi dropped 2 per cent to 1,920.05, dragged down by political jitters over the latest tensions with Pyongyang. Australia's S&P/ASX 200 lost 0.3 per cent to 4,900.50 as investors took profits after recent rallies.
The Dow Jones industrial average closed higher Thursday, regaining half of its decline the day before, as investors took advantage of low prices to get back into the market.
The Dow rose 0.4 per cent at 14,606.11. The S&P 500 gained 0.4 per cent to 1,559.98. The Nasdaq composite dropped 0.2 per cent to 3,224.98.
Benchmark oil for May delivery was up 7 cents to $93.33 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.19 to finish at $93.26 per barrel on the Nymex on Thursday.
The euro fell to $1.2930 from $1.2939 late Thursday in New York.
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