The U.S. central bank is widely expected to hold interest rates unchanged at 0.25 percent to 0.50 percent, and could hint at a rate hike by the end of the year.
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The Bank of Japan’s latest policy decision was the key event for global financial markets on Wednesday, and its policy changes are aimed at keeping long-term interest rates from falling, as low rates are putting financial pressure on its banks and damaging business sentiment. Japan’s trade balance slipped into deficit in August, for the first time in three months, as a stronger yen sapped exports, the Finance Ministry reported Wednesday, Sept. 21. But it will buy fewer very long-dated bonds, which should push up long-term interest rates and help banks make profits. The new framework consists of two major components, yield curve control and inflation-overshooting commitment. “For now, it appears likely that markets will start thinking about whether the BOJ’s new path offers a new line of thinking for the European Central Bank, too”, he said in a client note.
The BoJ said it would continue to purchase assets such as government bonds, at the rate of around 80tn Japanese yen ($787bn; £605bn) a year. But it said that fostering the scale of “inflation expectations” that might encourage consumers and businesses to spend more was taking time.
Analysts expect the BOJ to eventually slash its policy rate further. “The message is to address some of the side-effects of past monetary easing, and one of those has been that negative rates, and a flattening of the yield curve, has hurt the financial sector”. Speculative-grade Asian bonds denominated in the USA currency have returned 3.7 percent in the current quarter and are on track for their best year since 2012, Bank of America Merrill Lynch index data showed as of Tuesday. That compared with the dollar at Y101.72 late Tuesday in NY.
FILE – In this June 29, 2016 file photo, a delivery man pushes a cart past a Toyota vehicle at a Toyota showroom in Tokyo.
The BOJ also said it would diversify its exchange traded funds (ETF) purchases, with 2.7 trillion yen ($26.33 billion) to be allocated and linked to the Topix index. But imports also weakened, with purchases of oil, gas and other fuels falling almost 35 percent.
ASIA’S DAY: Tokyo’s Nikkei 225 reversed its early losses, gaining 1.9 per cent to 16,807.62.
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The announcement sent Asian shares soaring.
