BOJ to Allow Long-Term Interest Rates to Move in a Wider Band
At its latest monetary policy review, the Bank of Japan announced that it would allow long-term interest to move in a wider band around the target of 0% even as it kept its monetary policy unchanged, as was widely expected. The BOJ will now permit its long-term rates to move up and down by 0.25% around its 0% target, a slightly wider range than the previous move of 0.2% up and down.
In addition, Japan’s central bank also stated it would go in for purchase of ETFs and real-estate trust funds (REIT) only when the need arises, as opposed to its earlier practice of buying them up at a set pace annually. The BOJ has committed to maintaining upper limits of 12 trillion yen and 180 billion yen for the purchases of ETFs and REITs respectively.
The BOJ has agreed to hold short-term interest rates at -0.1% and the yields for the 10-year bonds close to 0%, as was its previous policy. Japan has one of the loosest monetary policies among leading economies as the BOJ struggles to achieve its 2% inflation target.
The ongoing coronavirus pandemic and the ensuing downturn have made it harder for the central bank to control inflation, with risks of deflation surfacing once again in the world’s third largest economy. Its purchase of risky assets are also among the attempts to hike inflation, but with the pandemic-driven downturn hurting domestic consumption further, inflation still remains weak.
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