BoJ policy review introduces additional interest rate flexibility

In Short

After a two-days monetary policy meeting, the BoJ announced today its interest decision and the results of the deliberations on its policy review.

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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Vincent Chaigneau

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