BoJ: Reaction from Tokyo - Fidelity

Fidelity’s Investment Team, notes that after today’s BoJ announcement, the Japanese market rallied strongly this afternoon as investors reacted positively to a shift in the Bank of Japan’s monetary policy framework.

Key Quotes

“Takashi Maruyama,  CIO Japan, Fidelity International:

“The announcement from the BoJ is a positive surprise that will enhance the sustainability of monetary policy, while at the same time acknowledging the limits of its previous framework. I think that the new measures will prove to be far more effective. Ultimately, we need to pay attention as to whether inflation expectations develop in line with the views of the BoJ.”

Hiroyuki Ito, Portfolio Manager of the Fidelity Japan Fund:

“The Japanese equity market responded positively to the BoJ’s announcement. While some market participants were concerned about a potential policy surprise, the central bank’s efforts to communicate more carefully succeeded.

“The BoJ’s decision to keep its short-term interest rate unchanged and steepen the yield curve is definitely positive for financial sectors such as banks and insurance. Although the BoJ decided not to reduce short-term rates further, the Japanese yen depreciated. This reflects the improved communication between the central bank and the market, which is supportive of risk-on moves.

“The FOMC rate announcement later today is an important event that will decide the direction of currency markets. Overall, I think that the Japanese yen is likely to remain range bound.

“I continue to focus on companies that can create and dominate new markets through the introduction of new services or products. The BoJ’s decision will not affect my stock picking criteria. In terms of financials, I remain neutral overall as the underweight exposure to banks is offset by holdings in non-banks and insurers.”