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Over the last few months, the foreign exchange market has been more sensitive to Central bank policy measures than at any other time in decades. However, the problem for the Central banks is that the FX market has largely not responded in the direction that they have intended. This is best illustrated by this year’s monetary transmission efforts by the Bank of Japan (BoJ).

The BoJ has, from a percentage of GDP basis, easily been the most aggressive of the all the G-7 central banks with the BoJ’s balance sheet reaching JPY 450 trillion early last month. Despite this aggressive easing, the BoJ has not come close to its three main policy goals of increasing consumer demand, kick-starting GDP growth and pushing domestic inflation back above 2%.

This impossible trinity of inflation, consumption and GDP growth took another hit today when the BoJ failed to satisfy the market with its most recent addition to the long running QQE policy. The Bank of Japan expanded its purchases of exchange-traded funds and doubled the size of a U.S. dollar lending program, while refraining from boosting the pace of government-bond purchases that have formed the main part of its monetary stimulus.

The central bank kept its annual target for expanding the monetary base at 80 trillion yen ($779 billion), done mainly through an equivalent increase in government bond holdings. It also left untouched the minus 0.1 % rate for a portion of commercial banks’ reserves. A dollar-lending program was expanded to $24 billion.