World stock markets rose Wednesday after the Bank of Japan became the latest major central bank to announce action to shore up fragile economic growth.
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The Japanese central bank says it was extending monetary easing by increasing its asset-purchasing fund to 55 trillion yen ($700 billion) from 45 trillion yen, to counter the strength of the Japanese yen. The move surprised analysts since the central bank had not been expected to ease policy until late October.
It followed steps by the U.S. Federal Reserve to stimulate growth through so-called quantitative easing. The Fed says last week it will purchase an average of $40 billion a month in mortgage-backed securities until the economy shows significant improvement.
The Fed’s goals are to lower long-term interest rates and encourage more borrowing and spending. The Fed also says it plans to keep its benchmark short-term interest rate near zero until mid-2015. Stock markets, which tend to respond favourably to actions targeting economic growth, rallied sharply following the Fed’s announcement.
European stocks rose modestly in early trading. Britain’s FTSE 100 added 0.2% to 5,877.13. Germany’s DAX was marginally higher at 7,351.58 and France’s CAC-40 gained 0.1% to 3,516.30.
Wall Street was poised for a higher open. Dow Jones industrial futures gained 0.2% to 13,529 and S&P 500 futures were up 0.2% at 1,455.90.
In Asia, Japan’s Nikkei 225 index rose 1.2% to 9,232.21, its highest close in more than four months. Hong Kong’s Hang Seng climbed 1.2% to 20,841.91 and Australia’s S&P/ASX 200 added 0.5% to 4,418.40. South Korea’s Kospi gained 0.2% to 2,007.88.
The Shanghai Composite Index rose for the sixth straight trading day, up 0.4% to 2,067.83. The Shenzhen Composite Index gained 0.7% to 865.73.
Despite the gains in global markets, analysts says the flood of money that gets unleashed during such monetary easing operations doesn’t necessarily address the fundamental issues of getting companies moving, factories producing and people back to work.
“Europe and America are going to print some money and Japan does not want to be left behind, so they have their version of quantitative easing,” says Francis Lun, managing director of Lyncean Holdings in Hong Kong. “What you really need is actual economic growth, and this is what we don’t have.”
Japanese exporters, which have been battered by the yen’s strength, surged on the Bank of Japan’s decision. Nissan Motor Co. rose 3.7%, and Mazda Motor Corp. jumped 5.1%.
Japan Airlines Co. made a modest return to the Tokyo Stock Exchange, with its share price rising 1% in the first day of trading. The carrier, also known as JAL, was delisted after it went bankrupt in 2010 but has since carried out cost cuts and restructured to return to solid profitability.
Investors are awaiting data on U.S. housing starts and existing home sales to be released later in the day.
Benchmark oil for October delivery was up 65 cents to $95.94 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.33 to finish at $95.29 a barrel on the Nymex on Tuesday.
In currencies, the Euro fell to $1.3032 from $1.3036. The dollar rose to 78.97 yen from 78.86 yen after the Bank of Japan announcement.