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The Bank of Japan has surprised the markets by announcing a round of quantitative easing that will add 10 trillion yen to its fund set aside for the purchase of government debt and various other assets. The shock move snapped recent advances by the Yen and pushed it down to a four-week low.
The Bank of Japan is by no means the only central bank currently using monetary stimulus to help its economy back to its feet. The European Central Bank, the Bank of England and the Federal Reserve have all had rounds of quantitative easing in the past 18 months. Many analysts support the method but feel it should be kept in moderation, something which the BoJ are tied down to due to their own internal policies, somewhat limiting the losses.
The Yen lost out to all other major currencies after the announcement, with Asia’s most traded currency down the most against the Euro, on which it lost 0.4% to rest at 103.25. The Japanese currency lost 0.3% on the dollar, down to 79.00 per dollar. The Euro dollar pairing however swung towards the Europeans, with the Euro making gains of 0.2% after a rough 24 hours to rest at $1.3066.
The announcement caught everyone off guard, including currency exchange experts around the world. While most people were expecting a round of QE from the Bank of Japan at some point in the future, nobody had predicted it would come so soon. The move has been hailed as proactive by analysts, who were quick to point out that a stronger Yen means products made in Japan will cost more, slowing exports and ultimately the nations gross domestic product which would have hurt the currency even more. By making this move now the BoJ has taken control of the situation and mitigated any effects from it.
Prior to today the Yen had gained almost 5 and a half percent in the last two quarters, making it the best performer of all the developed nations in a turbulent global economy. To put it into context the dollar has fallen by more than 0.5% and the Euro even further at more than 2%.