SINGAPORE (MktNews)- The timing of the cut in key interest rates by the Bank of Japan announced Wednesday afternoon was sooner than expected, analysts said, adding that they expect additional monetary easing measures in the period ahead.
"The rate cut was a question of timing. It was either now or in two weeks (the next policy meeting)," said Jai Tiwari, Fixed Income Strategist at Ideaglobal in Singapore.
Based on BOJ Governor Masuro Hayami's recent comments, the market was under the impression that the timing of a rate cut would would be tied with expected new banking reform measures, Tiwari said, adding that perhaps the sharp fall in the Nikkei today sparked the BOJ into action.
Citing uncertain economic prospects and renewed concern over downward pressure on prices, the BOJ cut its target for the overnight rate to around 0.15% from 0.25% and the symbolic discount rate to 0.25% from 0.35%.
Prior to the announcement, the Nikkei 225 Index closed below the key psychological level of 13,000, down 1.35% on the day, and touching a 15-year low at one point in Wednesday trading.
"There are more monetary easing measures to come, especially if the government gets serious about having banks get rid of bad loans as proposed by the FSA (Financial Supervisory Agency)." said Ching Ching Ho, Treasury Economist at United Overseas Bank in Singapore.
She added that the BOJ cut rates due to downward pressure on prices, which will be exacerbated by the FSA proposals.
The FSA proposals are expected to be officially announced before the next Bank of Japan meeting.
Susumo Kato, Fixed Income strategist at Lehman Brother in Tokyo, said that the BOJ could possibly cut interest rates to zero in the near term, while quantitative monetary easing measures will be done on a gradual basis.
He added that the consistent worsening of economic indicators as well as the sharp drop in the Nikkei since the last BOJ meeting on February 9 spurred the BOJ into action today .