The Bank of Japan on Wednesday made a decision to adopt a target for long-term interest rates in an overhaul of its massive stimulus programme.
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In a knee-jerk reaction to the BOJ’s new target, the benchmark 10-year JGB yield rose to as high as plus 0.005 percent – reaching a positive level for the first time since mid-March – from minus 0.060 percent on Tuesday.
The central bank left its deposit rate unchanged at minus 0.1%, which initially pulled the dollar to a low of ¥101.00, its lowest level since August 26.
BOJ scraps monetary base, targets longterm rates * Fed seen standing pat, could hint at hike this year * Sterling extends losses on concerns about Brexit impact TOKYO, Sept 21 (Reuters) – The yen weakened against the dollar and euro on Wednesday after the Bank of Japan altered its policy framework, and investors bought back the US currency ahead of the outcome of the Federal Reserve’s policy meeting later in the session.
Traders will now focus on the US Federal Reserve’s next policy decision, to be announced early on Thursday morning, Australian time. Economists think the Fed will leave rates unchanged when it ends its two-day meeting Wednesday.
The tinkering with policy highlights the limits of the central bank’s options but may alleviate concern the BOJ is “crowding out” other investors with its massive purchases of government bonds.
However, the central bank said it is adjusting its asset purchases to push long-term interest rates higher, a move that will help institutional investors like banks and insurers.
The BoJ said it will expand the monetary base until inflation exceeds 2 percent and stays above the target in a stable manner.
In its latest monetary-policy assessment, the BOJ said it would aim to keep the 10-year rate around zero.
The yen, meanwhile, strengthened 1.2 per cent against the U.S. dollar from the day’s low.
Regarding the outlook, the central bank said the pace of economic recovery is likely to remain slow.
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But some analysts are telling me that this won’t last – and in fact, the modifications that Japan has made to its monetary policy in place of lowering interest rates further below zero won’t be that effective in the long term. Both hawkish and dovish comments from Fed officials recently stoked volatility in financial markets, although consensus is now centred on a Fed rate hike by year-end. The ECB on September 8 left its aggressive stimulus measures unchanged.
