Global Equity Markets Strengthen on Japan Stimulus

on Sep 20, 2012
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Global stock markets strengthened on Wednesday (September 19) after the Bank of Japan (BoJ) became the latest central bank to pledge stimulus to help tackle weak economic activity. After its latest policy meeting, the BoJ said that it will expand its asset purchase fund by about 10 trillion yen (£77.6 billion), to 80 trillion yen (£616.5 billion), by buying 5 trillion yen (£38.8 billion) of short-term government bills and another 5 trillion yen of longer-term government bonds. Japan’s central bank also announced that the deadline for completing those purchases will be pushed from June 2013 to the end of 2013. The BoJ fresh stimulus followed last-week’s decisions by the European Central Bank (ECB) and the U.S. Federal Reserve to spur economic growth through further monetary easing.

The BoJ move lifted the global equities market significantly, with the FTSE All-World equity index rising 0.1 per cent. The main contributor to this jump was the Asia-Pacific region which bounced 0.6 per cent. Japanese stocks were one of the standout performers, with the Nikkei 225 bouncing 1.3 per cent to reach a four-month high. Tokyo’s feel-good factor was carried into Europe where London, Frankfurt and Paris all opened higher after seeing falls earlier in the week. The FTSE in London was up 0.05 per cent and the DAX in Germany was up 0.11 per cent early Wednesday. Hong Kong’s Hang Seng index also closed higher with a 1.16 per cent jump.

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!m[](/uploads/story/424/thumbs/pic1_inline.png)Since June, many of the big equities markets have risen between 15 and 20 per cent on hopes that the main central banks will announce crisis-tackling measures. All these expectations have either been met or exceeded over the past two weeks. So far in September markets have been buoyed by the European Central Bank unveiling plans to buy debt of under-pressure Eurozone nations, while the Federal Reserve Chairman Ben Bernanke unleashed a third round of bond-buying, also known as quantitative easing (QE3), in a bid to boost the U.S. economic recovery. Both announcements plus the most recent BoJ move have injected the global equities markets with some much-needed trading appetite over the last two weeks.

ING analyst Carsten Brzeski said for Reuters: “What we have seen over the past two weeks has been positive for stock markets (…). If the central banks continue to ease policy then it will of course be positive for markets but there is not that much more room to ease.” He added that the only additional stimulus which could be expected in the next one to two months is another rate cut by the European Central Bank.
Despite the central banks’ actions towards tackling the global financial crisis and the recently increased market activity, most investors remain conscious as the long-term budgetary issues are yet to be resolved, analysts said, referring to their forecasts for a short-term market trend, rather than a fundamental change in investors’ activity.

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