Bank of Japan policy shift signals bond purchase scheme close to limit, say analysts
Economists foresee more easing in near future, along with wage target policy
The Bank of Japan’s overhaul of its monetary policy on Wednesday suggested the current government bond purchase scheme is close to its limit, and the central bank may keep interest rates lower for longer, economists said.
On Wednesday morning, the BoJ unexpectedly decided by a 7-2 majority to switch to what it called “Quantitative and Qualitative Monetary Easing (QQE) with yield curve control” from “QQE with a negative interest rate”.
It said it is aiming for a 10-year Japanese government bond yield of around 0 per cent, while keeping the policy rate unchanged at minus 0.1 per cent, suggesting a shift of emphasis to yield curve from monetary base.
“The BoJ appears to be more worried about the limit of the tools and the negative impact of the negative interest rate policy, although it will never accept this, at least officially,” Masaaki Kanno, an analyst with JP Morgan wrote in a note on Wednesday following the BoJ decision.
“Although the BoJ maintains its commitment to achieve 2 per cent inflation at the earliest possible time, today’s decision suggested that the BoJ is not so serious. [Otherwise] the BoJ could have eased today, including the rate cut. ”
But he predicted a further cut in rates in the near future.
