The Bank of Japan announced it would strengthen its quantitative easing policies by adding targets for short-term and long-term policy interest rates, while ratcheting up efforts to boost inflationary expectations.
A news release Wednesday — following a promised review of the central bank's “quantitative and qualitative monetary easing” and negative interest rate policies — termed the BOJ's updated framework “quantitative and qualitative monetary easing with yield curve control.”
The announcement said for the period through the central bank's next board meeting Oct. 31-Nov.1 a short-term interest rate target of -0.1% would be set for financial institutions' policy rate balances at the bank, while annual Japanese government bond purchases of ¥80 trillion ($782 billion) would aim to keep the yield on the 10-year Japanese government bond at around zero.
In order to “control the yield curve smoothly,” the BOJ announced it would introduce outright purchases of JGBs with yields designated by the central bank, extending the longest maturity of bonds eligible for purchase to 10 years from one year at present.
The central bank said it would cut interest rates further “if judged necessary.”
Meanwhile, the BOJ — noting that its “price stability target” of 2% inflation had not been achieved — said it was necessary to adopt more forceful measures to raise inflationary expectations.
The central bank committed to expanding Japan's monetary base until that target has been exceeded and stays above 2%.
In a research note, Richard Jerram, chief economist with Bank of Singapore, said the BOJ's latest moves “made only minor changes to policy,” pointing to a steeper yield curve, with central bank bond purchases and negative rates set to continue.