November 4, 2016

"Kuroda Bazooka" Explained: What is it and How that affects Financial Market?

For investors who have heard of “Kuroda Bazooka”, let us explain you who is “Kuroda” and what does that phrase mean.

In January, 2016, Bank of Japan has announced that they have decided to start the first “Negative Interest Rate Policy” at their meeting. The monetary policy was intended to urge banks in Japan to lend money to companies in Japan, by the banks adding 0.1% of extra commissions for the funds saved with Bank of Japan.

The Monetary Policy was a huge surprise for everyone and has great impact on Financial Markets. It is called the third “Kuroda Bazooka” in Japan though, what is “Kuroda Bazooka” first of all?


The “Bazooka” by Haruhiko Kuroda

Haruhiko Kuroda is the President of Bank of Japan. As you may have already known, his comments at any meetings are very important to financial markets and every financial analysts are following his activities.

Sometimes his words or announcements have great impact to financial market and mixes them all.

The first Bazooka

His first bazooka was in April in 2013, when Kuroda has announced a “Quantitative Monetary Policy” for the goal of Inflation of 2%, the policy has brought extreme drawdown on Japanese Yen and surge of stock prices.

The Quantitative Monetary Policy was planned to double the Monetary Base within 2 years, and the Japanese Stock Index has surged from the around 12,000 JPY to almost 16,000 JPY in a few weeks, and USDJPY currency rate had gone from 93 yen to 103 at the same time.

The second Bazookaover-80-million-usd-transaction-per-second-in-forex-markets

After a year and a half of the first one, the second “Kuroda Bazooka” was shot in October 2014.

Japanese Stock Index has surged 1,300 JPY in only 3 days, and USDJPY currency rate has gone from 109 yen to 121 yen at the same time.

Again an extreme drawdown on extreme Japanese Yen and surge of Stock prices.

During this “Quantitative Monetary Policy”, Bank of Japan had continued to acquire over 800 billions of dollars of Bonds and ETF every year, and surely had a great impact on financial market.

The monetary policy was made by the Bank of Japan though, its president “Haruhiko Kuroda” will be the one announcing them. Its huge financial impact is now known as “Kuroda Bazooka”.

Some medias mention that “Kuroda Bazooka” is only when Bank of Japan announces Quantitative Monetary Policies, and Negative Interest Rate Policy doesn’t include though, both of the announcement had great impact on the market and it shouldn’t be wrong to call them both “Kuroda Bazooka” as there is really no correct definition of the phrase.

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