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Oct 31, 2014 8:49 AM

Global stocks get big boost from Bank of Japan

The Associated Press

LONDON (AP) Global stocks spiked sharply higher Friday after the Bank of Japan unexpectedly announced a fresh stimulus to boost the country's flagging economy.

Japan's stock benchmark was the main beneficiary, closing 4.8 higher at 16,413.76, its highest level since late 2007. Expectations that Japan's $1.1 trillion public pension fund would boost its equity holdings gave a further boost to the market.

The yen also fell sharply, with the dollar soaring 2 percent to 111.63 yen. The Japanese currency is now trading at its lowest levels in more than five years.

The markets were surprised by the decision by the Bank of Japan to increase its asset purchases by between 10 trillion yen and 20 trillion yen ($90.7 billion to $181.3 billion) to about 80 trillion yen ($725 billion) annually.

The announcement came after economic data showed that Japan's economy remained in the doldrums following a sales tax hike in April. Japan's inflation slipped and household spending fell in September while unemployment ticked up.

The move also comes at the end of a week where the U.S. Federal Reserve brought an end to its latest monetary stimulus, and generated hopes that the European Central Bank may also be tempted to soon enact its own quantitative easing, or QE.

"The Japanese central bank has taken the QE baton from the Fed and equity traders couldn't be happier," said David Madden, market analyst at IG.

In Europe, Britain's FTSE 100 advanced 1.4 percent to 6,551 while France's CAC 40 jumped 2.3 percent to 4,236. Germany's DAX climbed 2.1 percent to 9,307.

Futures showed Wall Street was set for another day of gains. S&P 500 and Dow Jones futures rose about 1.1 percent each.

While the stimulus move immediately sent stocks higher, some questioned the implications of a weak yen for the rest of the world and whether the measures would have a positive impact on wages or Japan's small businesses

"We will now most likely get another temporary leg up in wealth-related economic activity in Japan along with a very unhelpful deflationary Japanese yen devaluation for the rest of the globe," Michel Every, head of financial markets research at Rabobank, said in a commentary. "What is really needed are major structural economic reforms."

Earlier in Asia, Hong Kong's Hang Seng rose 1.3 percent to 23,998.06 and Seoul's Kospi was up 0.3 percent at 1,964.43. Australia's S&P/ASX 200 rose 0.9 percent to 5,516.90. Stocks in mainland China, India and Southeast Asia also rose.

Elsewhere, benchmark U.S. oil erased brief gains and was down 08 cents to $80.42 a barrel in electronic trading on the New York Mercantile Exchange. The contract dropped $1.08 to settle at $81.12 on Thursday. Brent crude, used to price oil in international markets, dipped 91 cents to $85.33 in London

In currencies, the euro fell to $1.2576 from $1.2607. Figures showing that inflation across the 18-country eurozone ticked up to 0.4 percent in the year to October from 0.3 percent before did not have much of an impact. Many economists think the European Central Bank could soon be tempted to follow the Bank of Japan's lead and enact its own QE. However, few think anything will be announced at the ECB's next policy meeting next Thursday.

"The willingness of the Bank of Japan to ease further in the fight against deflation will encourage those who think the ECB should be doing the same," said Julian Jessop, chief global economist at Capital Economics.


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