The Bank of Japan overhauled its monetary policy framework on Wednesday, switching to targeting interest rates and sidelining more than three years of massive money printing that did little to jolt the economy out of a decades-long funk.
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Governor Haruhiko Kuroda led his board in keeping the benchmark rate for a share of bank reserves at negative 0.1 per cent.
A man walks past an electronic stock board showing Japan’s Nikkei 225 index, left, that fell 80.18 points or 0.5 percent to 16,411.97 at a securities firm in Tokyo, Wednesday morning, September 21, 2016.
With the global economy showing few signs of rebounding and investors fretting about the limits of major central banks’ easings, the BOJ’s move came as a welcome relief for risk asset markets.
It decided in January to add negative rates to QQE.
But currencies across Asia fell against the dollar in line with the yen, with some jitters before a U.S. Federal Reserve announcement later in the day, which could give signals on the timing of the bank’s next rate rise.
Markets now see a possibility of a December rise – following the country’s presidential election – a move that would also give the rate-setting committee more time to evaluate the stop-start recovery and pressures in the wider world economy.
“Investors are holding vigil before the Bank of Japan and the Federal Reserve’s announcements tomorrow, and I think everything stays quiet until then”, said Peter Cardillo, chief market economist at First Standard Financial in NY.
Europe’s STOXX 600 was up 1 percent in early trading with euro zone banking shares up almost 3 percent and poised for their best day in more than two months.
Under the new framework, called “quantitative and qualitative monetary easing with yield curve control”, the BOJ will continue to buy JGBs roughly at the current pace of ¥80 trillion a year for the time being.
The yield on the 10-year Japanese government bond was recently up 4 basis points at minus 0.03%. The dollar jumped to 102.64 yen from around 101.66 yen earlier Wednesday.
Sterling was down 0.2 percent at $1.2958 after skidding to $1.2946, its lowest since August 16.
But investors turned to sell the yen as details from the BOJ’s latest statement emerged, revealing that the central bank had also launched a target on 10-year bond yields. The Hang Seng of Hong Kong gained 0.7 percent to 23,703.58 and the Shanghai Composite index added 0.2 percent to 3,027.59.
The move is seen as positive for life insurance companies and other institutional investors.
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Holdings of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.41 per cent to 938.75 tonnes on Tuesday. It gained 19 cents to $44.05 a barrel in NY.
