In the comprehensive assessment, the BOJ blamed external factors, including oil price falls and weak demand after a consumption tax hike in 2014, for domestic inflation remaining way below its target of 2 percent.
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TOKYO (AP) – Japan’s central bank decided Wednesday to keep its monetary easing strategy mostly as is, while adjusting its asset purchases to push yields on long-term government bonds higher.
In bond markets, US Treasury yields spiked higher immediately after the decision, with investors appearing to think the BoJ’s move to steepen the yield curve will have a ripple effect on other bond markets. It also committed to overshooting its elusive 2 percent inflation target.
To control the short end of the curve, the BOJ will continue to apply the negative policy rate. Meanwhile, the Australian dollar strengthened to ¥77.29 from ¥76.85.
Bank of Tokyo Mitsubishi reportedly said that the BoJ had “removed some of its troops from the battlefield” with this decision, and that the markets would now “test its commitment” to that inflation target.
At 9:44 a.m. ET, the Dow Jones Industrial Average was up 74.82 points, or 0.41 percent, at 18,204.78.
The U.S. central bank raised its benchmark overnight interest rate to a range of 0.25 per cent to 0.50 per cent in December, the first hike in almost a decade, but has held rates steady this year.
Struggling to rejuvenate an ailing economy, Japan’s central bank has set a more ambitious goal for raising inflation and announced steps meant to raise the profitability of financial firms.
The lack of more extreme action not unexpected given that at its July meeting the BoJ did little except signalling a rethink on its three years of attempting to pump up the economy with cheap money. The central bank is charging that rate on excess reserves it holds for banks to encourage them to lend more and said it might cut it further.
While Japanese stock prices rose and the yen weakened after the BOJ’s announcement, some analysts doubted whether the move will have a lasting positive impact on the market.
Turning Japanese: The Bank of Japan has taken a new, unexpected approach to monetary policy by introducing a long-term interest rate target of around 0% for 10-year Japanese government bonds. It also set a target for longer-term government bond rates.
The survey also found that 65 percent of respondents believe the Federal Reserve will “use a stronger form of forward guidance to signal that it intends to hike rates soon”.
The announcement helped shares soar – with the Nikkei nearly 2% up by the close – and the yen plunge at the expense of the dollar, as investors looked towards the United States ahead of the Fed’s policy announcement due later on Wednesday.
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Most economists expect the Fed to leave rates unchanged. So far, unlike with the Fed, there is no talk of ending its asset purchases or increasing interest rates on short-term investments and lending.
