(Bloomberg) -- It was the longest wait in two years.
The Bank of Japan hadn’t taken so long to announce a policy decision since the introduction of yield-curve control in September 2016. And finally, at 1:03 p.m. in Tokyo Tuesday, the central bank left its key interest rates unchanged while announcing policy tweaks, including a shift in purchases of exchange-traded funds toward assets linked to the Topix index and flexibility in bond operations.
For equity strategists, all eyes were on the announced ETF program shift after speculation swirled that the central bank, dubbed the Tokyo whale, was considering changing how it buys shares through the ETF fund program. For investors focused on JGBs, the central bank’s decision to only allow the a wider trading range sent the benchmark bond yield lower.
Bank stocks were the biggest casualties, dragging the benchmark Topix index to a one-week low on speculation the shift will stoke wider volatility in bond yields, while the Nikkei 225 Stock Average was basically flat. Japan’s 10-year bond yield dropped 3.5 basis points to 0.06 percent, while the yen fell 0.2 percent to 111.22 against the dollar.
Here’s what strategists and investors said:
Impact Limited
“As long as the BOJ maintains its annual pace of the ETF buying unchanged, the overall impact on the stock market is limited,” said Naoki Fujiwara, chief fund manager for Shinkin Asset Management Co. in Tokyo.
“The stock market will likely shift its focus to corporate earnings after the BOJ event is over. Japanese stocks will likely rebound gradually with solid earnings.”
Inflated Expectations
“Expectations for a various different things went a bit too far,” said Tetsuo Seshimo, a portfolio manager at Saison Asset Management Co. in Tokyo.
“People had strong expectations the BOJ would do something about interest rates but now banks are being sold.”
Stronger Yen
“My key takeaway from this is stronger yen,” Nader Naeimi, head of dynamic markets at AMP Capital Investors Ltd. in Sydney said.
“Lower confidence in inflation and the downgrade in inflation forecast point to higher real yields and upward pressure on the yen unless easy monetary policy finds a way to be transmitted to the real economy."
Slightly Dovish
“Most people would think of this as largely in line with market expectations but to some it could’ve been slightly dovish than what they anticipated,” said Kiyoshi Ishigane, chief strategist at Mitsubishi UFJ Kokusai Asset Management Co. in Tokyo.
“Some people thought the BOJ may lift its long-term yield target because there’d been such media reports. It feels like for 70 to 80 percent of the people, the results are in line with expectations where as maybe 20 to 30 percent are taking this as somewhat dovish.”
Keeps Easing
“By introducing forward guidance in its statement, the BOJ wants to show that it will persistently continue easing and won’t raise the level of yields rapidly or sharply,” said Mari Iwashita, chief market economist at Daiwa Securities Co.
That it didn’t address concerns about the side effects of its policy indicates the “decision today is merely technical to make the current easing scheme sustainable for a long time as price outlook was lowered.”
Not Winding Back?
“Having lowered the price outlook, the BOJ is in no position to wind back the YCC scheme,” said Akio Kato, general manager of trading at Mitsubishi UFJ Kokusai Asset Management Co. in Tokyo.
“While the bond buying plan is unchanged, the BOJ is likely to keep cutting purchase amounts as necessary.”