The bank’s announcement Wednesday that it’s switching away from its previous bond-buying goals in favor of a 10-year interest rate target “reflects concerns about the sustainability” of the large-scale bond purchases, Marcel Thieliant, senior Japan economist at Capital Economics, said in a research note.
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The BOJ did not cut its short-term interest rates target as some market players had expected, even though the central bank said it would be ready to do so in the future if necessary.
The Bank of Japan’s shift of focus to control bond yields may encourage investors to put more money into US dollar assets, according to Mizuho Trust & Banking Co. 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. But it abandoned its base money target and instead adopted “yield curve control” under which it will buy long-term government bonds to keep 10-year bond yields at current levels around zero percent.
Sensex and Nifty rose on Wednesday, heading for a fifth session of gains in six, as global sentiment was lifted after the Bank of Japan (BOJ) overhauled its policy framework and recommitted itself to more policy easing in the coming weeks.
The Japanese Nikkei 225 (Nihon Keizai Shinbun:.N225) closed around 1.9 percent higher subsequently, having traded 0.3 percent up on the day before the decision was announced.
“With regard to the amount of JGBs to be purchased, the bank will conduct purchases more or less in line with the current pace – an annual pace of increase in the amount of outstanding of its JGB holdings at about 80 trillion yen”, the bank said.
In a 61-page assessment, the BOJ said its “quantitative and qualitative easing”, monetary policy, known as QQE, had succeeded in ending deflation, or falling prices.
Regarding the outlook, the central bank said the pace of economic recovery is likely to remain slow.
In the United States, the Federal Reserve is expected to raise short-term USA interest rates but probably not before a meeting in December. Shares were higher in Taiwan and most markets in Southeast Asia.
Predictions of tightening United States rates and a lack of recent easing from other central banks have fuelled debate that the age of easy money – which has helped fuel a rally on global markets – could be ending. The euro edged down to $1.1143 from $1.1151. The ECB on September 8 left its aggressive stimulus measures unchanged.
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