Having met its targeted inflation level of 2%, Japan’s central bank has stated it would end its loose monetary policy.
In an interview to Bloomberg, Haruhiko Kuroda, the Governor of the Japan’s central bank stated, the Bank of Japan is set to exit from its massive monetary stimulus.
“When 2 percent inflation target is met or is close to be met, of course we can change the target, the monetary operating target of interest rate,” said Kuroda, when asked how the BOJ would signal an exit from ultra-easy policy. “At this moment, inflation is only 1 percent, so we will continue the current yield curve control at the current level of interest”.
Addressing market players he stated, they should not focus on the amount of government bonds the BOJ purchases, as they are no longer the central bank’s policy target.
Under a yield curve control (YCC) policy, the BOJ guides short-term interest rates at minus 0.1 percent and the 10-year government bond yield around zero percent to achieve its elusive 2 percent inflation target.
Incidentally, the Bank of Japan has a loose pledge to buy government bonds so its balance of holdings increase to around $713.08 billion (80 trillion yen) per year. However, its massive monetry stimulus has resulted in drying up liquidity in the market, as a result its actual purchases have fallen to roughly half of that level.