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Markets

Asian markets fall as BOJ action leaves investors unimpressed

More intervention pledged by central bank to address coronavirus crisis

Jittery trading on the Nikkei reflected investor sentiment as Asian markets began to open following the U.S. Fed's actions. (Photo by Shihoko Nakaoka)

TOKYO -- Japan's benchmark stock index fell and the yen gyrated on Monday after the Bank of Japan followed international peers by unveiling emergency measures to try to nurse the economy through the coronavirus crisis.

The BOJ rushed forward this week's policy meeting and decided to expand its purchases of stocks, bonds and other financial assets. It will double its annual purchases of Exchange Traded Funds (ETF) to 12 trillion yen ($112 billion).

The BOJ also boosted its loan support progamme to help keep businesses liquid through the crisis. But the central bank refrained from a further cut to interest rates, leaving its main policy rate at negative 0.1%.

The Nikkei index initially rose about 300 points, or 2%, after the BOJ announcement. But investors soon took a more negative view of the intervention and the Nikkei ended the session down 2.46%, or 429 points, at 17,002.

The yen jumped to 106.6 per U.S. dollar, before falling towards 107 per U.S. dollar.

Stock indexes fell across the Asian region. Hong Kong's Hang Seng Index closed 4% lower, while South Korea's Kospi slipped 3.2% and the Shanghai Composite dropped 3.4%.

The Australian ASX/200 index slumped 9.7% as the central bank said it was ready to buy government bonds and speculation mounted over the possibility of further fiscal stimulus

India's benchmark S&P BSE SenseX index declined 8% while Singapore and Indonesia were weaker by 5.2% and 4.4% respectively. Thailand dropped 7.3% and Philippines tumbled 7.9%.

Yoshinori Shigemi, chief global strategist at JPMorgan Asset Management in Japan, noted that although markets welcome global policy coordination, "asset purchases don't really have that much instant impact to markets."

Shigemi said a strong sense of uncertainty about the spread of the coronavirus continues to loom over markets as well as "concerns over Europe and the U.S. further shutting down businesses and extending travel bans, which could lead to great economic contraction."

The action from Japan's central bank followed an overnight move by the U.S. Fed to slash rates to nearly zero. On opening in the wake of the Fed's action Tokyo's Nikkei Stock Average was up nearly 300 points to 17,726, though stocks later declined as investors waited for the BOJ to show its hand.

The action by central banks followed a turbulent week that sent global stock markets crashing over fears of an economic slowdown, as the coronavirus pandemic hits supply chains while cases surge in Europe and the U.S.

Central banks and governments have been scrambling to stem the market carnage, with the Fed on Sunday announcing the purchase of $700 billion in Treasuries and mortgage-backed securities as well as the rate cut.

On Friday, U.S. President Donald Trump declared a national emergency and announced $50 billion in federal funds to combat the spreading virus.

The coronavirus outbreak has battered the world economy, with countries closing borders, supply chains being disrupted, and workforces facing uncertainty. The gloomy outlook has some investors fearful of a corporate debt crisis and full-blown recession.

New coronavirus cases in Europe are topping levels seen in China at its peak. Over 160,000 confirmed cases have been recorded worldwide.

G-7 finance ministers will hold an emergency telephone conference at 11 p.m. today Tokyo time to discuss the spread of the virus. Japanese Prime Minister Shinzo Abe said, "We want to overcome these difficult times by working together."

According to Chris Weston, head of research at Melbourne-based Pepperstone Group: "The market wants more, and there are genuine worries about small and medium enterprises and health in general. The [spread between] the forward rate agreement and the overnight index swap, forex basis and credit spreads are all at worrying levels and this is what the Fed would be most keen to solve."

The FRA/OIS spread -- a measure of future bank borrowing costs -- widened last week to levels not seen since 2011, before narrowing slightly on the heels of the Fed's ramped up repo operations. Corporate bond spreads also began to widen in February, with moves most pronounced this month as companies faced a shortage of funding.

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