“The Bank of Japan effectively admitted the error of their ways by saying that their attempt at negative interest rates and standard quantitative easing was not working”, said Boris Schlossberg, managing director of FX Strategy at BK Asset Management. Economists expect the Fed to leave rates unchanged when it ends its two-day meeting Wednesday.
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Eastern Time, looms. The expected Fed policy update comes as the Bank of Japan announced Wednesday that it was refocusing its monetary-policy efforts to concentrate on keeping 10-year Japanese government-bond yield at zero in its latest initiative to juice its sluggish economy.
The Fed has held its target rate for overnight lending between banks in a range of 0.25 to 0.50 percent since December, when it raised borrowing costs for the first time in almost a decade. 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.
The BOJ said it would continue to buy long-term government bonds at a pace that ensures its holdings increase by 80 trillion yen ($781 billion) per year.
Many investors fear central banks have almost exhausted the limits of what monetary policy can do, putting pressure back on governments to step up spending.
Pushing yields on longer-term securities higher will be a boon to life insurers and other big institutional investors that have seen investment returns plunge after the BOJ imposed its negative interest rate policy in February.
Equity markets were more buoyed however, with the Nikkei 225 index in Tokyo closing up 1.9%.
Gold climbed along with stock markets after the Bank of Japan overhauled its monetary policy framework, switching to targetting interest rates and sidelining more than three years of massive money printing.
The BOJ also said it would not hesitate to ease monetary policy to support growth.
“The BoJ appears to be more anxious about the limit of the tools and the negative impact of the negative interest rate policy, although it will never accept this, at least officially”, Masaaki Kanno, an analyst with JP Morgan wrote in a note on Wednesday following the BoJ decision.
Fed Chair Janet Yellen is scheduled to hold her quarterly press conference half an hour later.
US stocks rallied and the dollar index eased further on Wednesday after the Federal Reserve left USA interest rates unchanged, keeping its low-rate environment intact for now.
Influential former US Treasury Secretary Larry Summers argued in a series of tweets Wednesday that the Fed should not feel pressure on its credibility to raise rates now, in December, “or at anytime (before) inflation expectations are accelerating”, he said.
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Meanwhile, European Central Bank chief Mario Draghi is asking for help from the governments of the 19 counties that use the euro currency.
