A pledge to hold on to “extremely low” interest rates was made by the Bank of Japan (BoJ) and only made a series of small adjustments to its monetary policy. This brought an end to speculations among economists and markets about larger measures being taken by the central banker of Japan.
The central bank said that its decisions were aimed at supporting the framework for “continuous powerful monetary easing”. The bank has had to make three interventions in the last week to cap bond yields.
According to analysts, Haruhiko Kuroda, BoJ governor, would mot probably find it hard to convince markets or the banking sector in Japan that this was a material development, even though there was a calm response to the bank’s decision in equity, currency and bond markets.
Attempts to add more flexibility to the massive stimulus program of the BoJ were part of the changes announced.
The earlier stand of the bank to continue with its policy of buying bonds with the aim of retaining 10-year JGB yields at “at around zero per cent”, was reiterated in the decisions. But central bank also said that the line that “the yields may move upward and downward to some extent”. According to experts, the “around zero” commitment had already implied the flexibility in bond operations and an expanded trading range which was anticipated by some analysts was not implied by the new line.
The BoJ said that uncertainties related to the planned consumption tax enhancement next October has driven it to keep in place the extremely low levels for some time longer while introducing a forward guidance for policy rates.
The balance of its ¥6tn ($54bn) per year ETF buying program would be altered by it, the BoJ said keeping up with the market expectations, so that it was possible to create a greater focus on ETFs that track the broader, market cap-weighted Topix index.
“They seem to have dug themselves in for more of the same — if anything, these minute tweaks add up to less chance of a change to the yield curve control or negative interest rate policy over the next six months or even the next year. It gives very little to the banking sector”, said James Malcolm, Japan economist at UBS.
There has been only a 0.2 per cent appreciation in inflation for the month of June across product categories except for fresh food and energy. This has driven the BoJ to bring down its forecast for inflation/. The now anticipates inflation or price rise to be around the 1.5 per cent mark for the year to March 2020. It has earlier in April given an outlook of 1.8 per cent for the same period.
“The momentum toward achieving the price stability target of 2 per cent is maintained but is not yet sufficiently firm,” the BoJ said in a statement.
(Adapted from FT.com)