The Bank of Japan said it would increase its asset buying programme to 80 trillion yen ($726bn; £454bn) a year, up from the previous rate of 60-70 trillion yen , coming to the rescue of investors who were speculating that the era of easy money was soon going to vanish .
The BSE Sensex has seen a 500 point rally this Friday as the US Federal Reserve ended its bond buying programme earlier this week followed by this announcement by the Bank of Japan. The Japanese Nekki index shot up by 4.8% to 16413.7 points which is nearly the highest it has reached in the past seven years.
The BOJ’s move was made amid weak domestic demand following an April sales tax hike, and concerns that lower oil prices would affect consumer prices. BOJ governor Haruhiko Kuroda said it was a “critical moment for Japan to emerge from deflation”. The programme is designed to stimulate Japan’s economy by encouraging more lending and thus more spending.
The announcement is expected to have great repercussions in India. The additional stimulus package from the Japanese central bank is positive news for India, and with macros situation well balanced, India stands out compared to other emerging market economies.
Apart from Japan, investors are also betting that the European Central Bank (ECB) will now announce its stimulus program to revive growth in Euro-zone. Experts feel that some of this excess liquidity will be coming to India compared to other emerging market economies.
As the crude prices fall, inflation is stabilizing and the economy is showing signs of recovery more foreign capital is expected to be infused into the economy and corporate earnings are likely to rise. Global ratings agency Moody’s said that it may consider a ratings upgrade on India if inflation stays under control in the long term and the recent measures to boost growth and attract investments are implemented properly.
“India stands to be a beneficiary from the potential QE in Europe and Japan. If a QE happens in these regions, the government will reduce the supply of bonds in the capital markets, bond prices are bound to escalate and investors are likely to sell off relevant debt instruments” said Vivek Gupta, Director, Capital Via Global Research. He adds that within the emerging markets, India appears to have the strongest potential on the back of solid fundamentals, enough potential for a re-rating in valuations and a stable-yet-dynamic government at the helm
