The Bank of Japan (BOJ) maintained its key policy rate unadjusted to the conclusion of Friday’s two-day monetary policy review meeting.
The central bank left the key rate constant at -10 basis points, while maintaining its commitment to buy J-REITS at an annual rate of up to JPY 180 trillion.
BOJ clarified in a policy statement that the ten-year JGB yield may increase or decrease by 0.25% (not 0.2%) around its 0% target.
Markets expected the Japanese central bank to allow longer-term bond yields to fluctuate more around its target, hinting at a “stealthy” reduction in its huge purchases of exchange-traded funds (ETFs).
Summary of the statement
BOJ adjusts guidelines on long-term interest rate target.
It will establish an interest scheme to promote the loans.
In the plan, interest rates, which will be related to the short-term policy rate, will be applied to certain amounts of current account balances of financial institutions.
It will introduce fixed rate purchase transactions for consecutive days as a powerful tool to set the upper rate cap when necessary.
It will maintain a 12 trln yen ceiling for ETFs, a 180 trillion yen ceiling for REIT even after the pandemic eased.
It makes no changes to its forward interest rate orientation.
Suitable for maintaining YCC and QQE to achieve 2% inflation.
Cash to buy ETF, REIT massively when markets destabilize enormously.
It will maintain its commitment to overcoming the expansion of base money.
Reducing rates is an important option as an agile and additional relief measure.
It will introduce a scheme that mitigates the impact on financial institutions ’profits at the time of interest rate cuts based on the amount of their loans.
It will apply certain interest rates as an incentive to the current account balances of financial institutions.
Make adjustments to the deposit reservation system by levels.
The method for calculating additional macro balances in the supplementary deposit facility will be modified.
It clarifies that long-term rates may advance and fall 0.25% from their long-term tariff target, but they will not apply this rule rigidly when rates are briefly exceeded in day-to-day movements.
Excessive falls in super-long yields can hurt long-term economic activity.
Market reaction
The yen witnessed the negotiation of the fact after the BOJ changed the performance and target of the ETF, as the markets already had a price on them.
The USD / JPY fell from the lows and briefly regained the 109 level in the BOJ announcement, modestly flat on the day.