Profit taking ahead of the Bank of Japan policy announcement reversed early gains to a fresh 20-month high on the Australian sharemarket but it held on to finish marginally in the black after the central bank delivered on market stimulus expectations.
The S&P/ASX 200 index opened 0.4 per cent up to hit a high of 4800 points, but it sold off mid-morning as doubts emerged that the extent of the BOJ's plans to stimulate the economy, leaving the benchmark index 1.6 points, or 0.03 per cent, up at 4779.1 points.
An hour before the close the BOJ announced a firm inflation target of 2 per cent and joined the club of central banks offering "unlimited" bond purchases aimed at finally releasing the economy from the 20-year long grip of deflation.
Markets were divided by the news because the open ended "money printing" program totalling 13 trillion yen ($130 billion) a month will only start in January 2014 once the current program expires, with the overall pace remaining the same.
Japan's Nikkei index reversed a 1.2 per cent rally to trade 0.7 per cent in the red at the close of the ASX as the yen strengthened, while the Shanghai composite index was up 0.1 per cent.
Cautioning that the plan could fall short of achieving its aims, National Australia Bank global head of currency strategy Ray Attrill said the Swiss Central Bank had printed about 40 per cent of GDP to cap the yen's advance against the euro last year, which meant Japan could need to commit as much as 190 trillion yen to achieve its objective.
"And of course additional BOJ balance sheet expansion has to compete with a Fed that is currently printing dollars at the rate of about 7.65 trillion yen a month," he said.
The Australian dollar remained in a tight range before the BOJ announcement, but it bounced from $US1.0505 to $US1.0560 as Japan escalated the global currency war.
Yesterday spot iron ore edged up US80Â¢ to $US145.90 a tonne, while copper rose 0.6 per cent to $US8110 a tonne and gold was $US3 firmer at $US1693 an ounce.
Patersons quantitative analyst Kien Trinh said
The 5000 level on the S&P/ASX 200 index should act as a major obstacle for the market because it represented a confluence of technical resistance while there was "negative divergence" on market indicators pointing to a correction in the near future.
"Market breadth continues to stagnate below the 50 per cent threshold," he said.
"Failure of the AUD/USD and copper to break out from its long term consolidation range warns of complacency."
More to come