In stark contrast to market expectations of further intervention to stimulate a stagnating economy, the Bank of Japan opted to stand pat Thursday, triggering a surge in the Japanese yen and currency-related exchange traded fund.
The CurrencyShares Japanese Yen Trust (NYSEArca: FXY) jumped 3.2% Thursday as the U.S. dollar depreciated 3.0% to ¥108.2.
Meanwhile, the appreciating yen currency dragged on Japanese equities, with the iShares MSCI Japan ETF (NYSEArca: EWJ) off 4.4% Thursday, plunging below its 200-day simple moving average. Additionally, currency hedged ETFs underperformed, with the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) down 7.1%, breaking below its 50-day simple moving average.
Investors and market observers largely anticipated further stimulus measures to goad a slowing economy. However, the BOJ’s inaction at its April meeting defied expectations.
“Everybody was stunned,” Margaret Yang, a market analyst at CMC Markets, told the Wall Street Journal, adding that market volatility picked up again later in the Asian trading day as equally surprised investors in Europe reacted to the news.
This was not the first time the Japanese central bank caught the markets off guard. In January, the BOJ set negative interest rates on bank deposits only days after Bank of Japan Gov. Haruhiko Kuroda shut down the idea.
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