Tokyo, December 18

Japan’s central bank announced an unexpected tweak to its vast stimulus programme today, jolting financial markets and pushing the yen into a brief dive.

The decision came days after the Federal Reserve’s first interest rate cut in almost a decade and highlights the divergence in monetary policy between the US central bank and its overseas rivals.

Bank of Japan (BoJ) policymakers rolled out a series of changes, including boosting their holdings in firms dedicated to capital spending and new hiring.

They also made some other changes — including hiking the bank’s exposure to longer-term bonds — after wrapping up their last policy meeting of the year.

The announcement comes as analysts raise concerns the BoJ would struggle to scoop up enough bonds under its 80 trillion yen ($654 billion) annual asset-buying scheme — which effectively prints money to spur lending.

News that the BoJ had tinkered with policy shocked financial markets, which had expected it to stay its hand for now, although the reaction was short-lived.

Tokyo’s benchmark Nikkei stock index jumped more than two per cent right after the announcement but returned to negative territory shortly after. It closed 1.90 per cent lower. And dollar jumped above 123 yen from 122.56 yen earlier in Tokyo before also settling back.

Investors were left underwhelmed after the modest scale of the changes sunk in, analysts said.

“The market took it as a surprise, but the impact of the measures is unclear,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

“At least we get the idea that the Bank of Japan wants to press on the gas pedal.”

The central bank’s stimulus, launched more than two years ago, is a cornerstone of Prime Minister Shinzo Abe’s attempt to kickstart the long-lumbering economy with a policy blitz dubbed Abenomics.

The drive to defeat years of deflation has had a limited impact on the wider economy, however, despite sharply weakening the yen in a boost for exporters and stoking a stock market rally.

A falling price spiral in Japan put consumers off buying in the hopes of getting goods cheaper down the road, denting firms’ expansion and hiring plans. That weighed on growth in the wider economy.

Today’s move to invest more in firms that buy new equipment and take on more workers comes as Tokyo struggles to convince companies to lift wages.

BoJ Chief Haruhiko Kuroda said he was keeping a close eye on how much cash firms hand out in winter bonuses, and in spring wage negotiations. Policymakers hope that putting more cash in shoppers’ wallets will spur spending and move Japan closer to BoJ’s two per cent inflation target.