Investing.com - The Bank of Japan unveiled complex changes to its policy framework by setting a target for long-term interest rates even as it kept a 0.1% negative rate on certain cash holding while rejigging its monetary base target of ¥80 trillion annually to support its yield aims, the central bank said Wednesday at the end of a two-day board meeting.
"The BoJ will seek to lower real interest rates by controlling short-term and long-term interest rates, which would be placed as the core of the new policy framework," the central bank said.
The new yield curve policy was adopted in a 7 to 2 vote by the 9-member board and the related measure on a revised Japan government bond market operations passed by an 8 to 1 vote with the stated aim of the changes to reach inflation levels sustained above 2%. That means the BoJ has effectively abandoned a base money target and replaced it with a "yield curve control" effort to buy long-term government bonds to keep 10-year bond yields around the current levels of 0%, though at a pace of the ¥80 trillion annual level now used.
"The main point for the BoJ's decision is that the bank set long-term yields as a target. The central bank is giving certain consideration to the financial industry by trying to work on the yield curve," said Atsushi Takeda, chief economist at the Itochu Research Institute in Tokyo.
"The BoJ changed its policy framework significantly as the central bank previously did not show much attention to the yield curve. "We can take the BoJ's decision positively as the bank is trying to find more effective ways. The BoJ has done what it could do and the onus now is on the government to push forward with its growth strategy."
The central bank also noted that inflation can even overshoot its target with Governor Haruhiko Kuroda slated to explain the moves in detail at a news conference at 3:30 p.m Tokyo time. (0630 GMT).