Markets flat as Japan leaves helicopters grounded

Added 29th July 2016

Markets were largely flat on Friday as investors digested the news that Japan has decided not to launch the ‘helicopter money’ that some see as the answer to its economic struggles.

Markets flat as Japan leaves helicopters grounded

Bank of Japan governor Haruhiko Kuroda left the door open for further monetary stimulus in his commentary, but said for the time being the base rate will be held steady at -0.1% and its QE programme will stay at ¥80tn per year.

Japan’s top index the Nikkei 225 fell immediately following the announcement but was 0.5% up at 16,569 soon after, while the FTSE 100 was a marginal 0.2% down by mid-morning.

The most notable market movement triggered by the announcement was a 1.6% rise in the value of the Yen to leave one US dollar worth JPY 103.6.

“With no helicopter money announced, the BoJ’s move today was undramatic and can be viewed as slightly positive,” said Paul Tasi, director of research, Japan at Fidelity International. “By leaving the negative interest rate policy unchanged and with no changes to the monetary base, there will be no yield curve pressure and no further pressure on banks. Banks will also benefit from the increased dollar lending facility. Increased ETF purchases will help with cross share unwinding and support the market.”

“Today’s announcement fell short of market expectations with many participants expecting something more significant, such as helicopter money, given the continued diminishing inflation expectations and weak growth,” added Matthias Hoppe, portfolio manager at Franklin Templeton Solutions.” “We do know that the central bank will again review the effectiveness of its policies at its upcoming meeting on 21 September, due to the uncertainty about the outlook for inflation, which has steadily underperformed the central bank’s target.”

“This may raise hopes for something more meaningful to be implemented later on this year,” he said. “At this point, more easing at a later stage this year seems likely, given the central bank has continually fallen short of the 2% inflation target – but we don’t think this this will be the ‘helicopter money’ that many have been suggesting.”

Elsewhere in financial markets the trumpeted ‘FANG’ stocks continued to go from strength to strength.

Google saw shares in its parent company Alphabet Inc climb to $746 after it revealed a 21.3% increase in second quarter revenue.

Lewis Grant, senior portfolio manager on the Hermes Global Equity Fund, said Google is the second largest holding in the fund, and he believes it is very well placed to continue delivering for investors.

“Google has a very steady core business which is delivering the numbers it needs to from advertising revenues and they also have the many other projects they are working on,” he said.

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Alex Sebastian

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Alex joined Portfolio Adviser in April 2014 and has been a financial journalist since 2008. He has previously held editorial positions at the Financial Times Group and Euromoney Institutional Investor. Alex is NCTJ qualified and has a degree in economics from the University of Sussex.

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