NEWS : Japan - New BOJ policy looks to keep long-term rate at 0%

September 21, 2016 TOKYO -- After a highly anticipated meeting, the Bank of Japan on Wednesday announced a new framework for its monetary policy -- to keep the long term interest rate at around 0% and further raise inflation expectations.
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The new framework has a name: "Quantitative and Qualitative Monetary Easing with Yield Curb Control."
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The core is a decision to calibrate purchases of Japanese government bonds so that 10-year JGB yields "remain more or less at the current level," around 0%. To do this, the BOJ will purchase JGBs with yields "designated by the Bank."
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The BOJ will continue to purchase JGBs at its current pace, an annual increase in its holdings of 80 trillion yen ($780.1 billion). But the Bank has decided to scrap the guideline for the average remaining maturity of the JGBs the BOJ would purchase. It also abandoned its base money target.
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These moves are likely aimed at gaining more flexibility in policy operations so that monetary stimulus measures are sustainable in the long term. 
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The BOJ did not adjust its negative rate policy, keeping it at minus 0.1%.
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Another aspect of the new framework is what the central bank is calling its "inflation overshooting commitment." The bank is aiming for an annual 2% inflation target; the BOJ said it will "continue expanding the monetary base until the year-on-year rate of increase in the observed consumer price index [all items less fresh food] exceeds the price stability target of 2% and stays above the target in a stable manner."
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In addition, the BOJ decided to maintain the pace at which it is purchasing exchange traded funds and real estate investment trusts.
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The decisions come after the bank carried out a "comprehensive assessment" of its monetary policy since Haruhiko Kuroda became governor in March 2013. It concluded that its policies have brought about positive changes in the economy "through the decline in real interest rates," something it is looking to strengthen with its new "yield curb control" tool. The assessment also judges inflation expectations in Japan have not risen as hoped and that there is a need to "adopt measures that will raise inflation expectations in a more forceful manner."
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As for additional easing options, Japan's central bank is keeping them open, saying it can cut the short-term policy interest rate and the target level of the long-term interest rate, expand asset purchases or accelerate the expansion of the monetary base.
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SHOTARO TANI, Nikkei


2016-09-21 01:27:28
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