Jul 31 2018

BoJ maintains rates with flexible policy

Haruhiko Kuroda, Bank of Japan (BoJ) Governor, has kept the monetary policy steady and promised to maintain the ‘extremely low’ interest rate while changing the ETF buying programme. This would make its policy framework more flexible for their long term (10-year) yield target at ‘around’ 0 percent, while the short term interest rate target at -0.1 percent.

The Japanese government bonds (JGB) prices fell steeply last week, driving the benchmark 10- year yield to hit its highest in about 6-months, on speculation of policy changes decision. The forced intervention to cap the bond yields probably prompted the central bank to strengthen the framework for ‘continuous powerful monetary easing’.

Subdued inflation has prompted BoJ to lower its inflation forecast though it has committed to reaching its inflation target of 2% in order to keep yen under control.

The ETF purchases would rise from 2.7trillion Yen to 4.2 trillion Yen. Forward guidance given by BoJ on the policy rates as the extremely low levels of interest rate will remain in place ‘for an extended period of time’ due to uncertainties linked to planned consumption tax increase next October.