BoJ policy review introduces additional interest rate flexibility

Highlights:

• The Bank of Japan (BoJ) maintained its yield curve control policy with the short-term and 10y JGB targets of -0.1% and 0%.
• The policy review basically brings three new decisions:
  • The BoJ will introduce an “Interest Scheme to Promote Lending” which enables the bank to cut interest rates while mitigating its negative side effects.
  • It widens the band in which 10y-JGB yields can fluctuate from 20 bps to 25 bps.
  • The bank will purchase ETFs and J-REITs only when necessary with an upper annual limit of JPY 12 tr resp. JPY 180 bn.
• The new measures look to add more flexibility to the BoJ policy options but we consider the hurdles for a fundamental change in interest rate policy still as substantial..

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