The BOJ, conducting its first comprehensive review of monetary policy framework since September 2016, took steps to remedy the side effects of its extreme monetary easing, such as market distortions and pressure on bank revenues. The changes are meant to make the easing policy more sustainable for the long term.
The review comes amid a strong rally in Japanese share prices, with the Nikkei Stock Average hovering around a 30-year high.
The central bank dropped from the policy statement its reference to a "6 trillion yen" ($55 billion) target for annual purchases of exchange trade funds, while keeping "the upper limit of about 12 trillion yen." The bank appears to be signaling that it remains willing to step into the market, but only when necessary.
The BOJ kept the main policy levers unchanged, including short-term interest rates at minus 0.1% and long-term rates at zero.
Yet the bank tweaked its stance of letting long-term rates move around the target levels more flexibly, changing the range to between around plus and minus 0.25%, instead of plus and minus 0.2%, confirming a Nikkei exclusive story released on Thursday.
The Nikkei Stock Average lost as much as 595 points, or 2.0%, following the announcement, which included a mention that the central bank will only purchase exchange traded funds linked to the broader TOPIX index, but not to the Nikkei average.
The statement comes as monetary authorities in the U.S. and eurozone said this week they will keep policy extremely loose until economic recovery takes root.
The accommodative stance was echoed by the BOJ, which pledged to buy Japanese government bonds "without setting an upper limit" and continue purchases "as long as it is necessary" and until the 2% inflation goal is attained in a stable manner.
The bank also reminded that it is willing to cut interest rates further into negative territory, while adding that it will take mitigating steps to avoid heavy damage to banks' bottom line with more aggressive rate cuts.
Following the September 2016 review, the BOJ has slowed the pace of JGB purchases sharply. While the 10-year interest rates stay near zero, the yields on longer maturities have risen to multiyear highs, with a 30-year bond yield rising to as high as 0.76% last month.
Reference: Nikkei Asia
Thai
Eng