BOJ tweaks pol­icy, but keeps mi­nus in­ter­est rate un­changed

Malta Independent - - BUSINESS -

Ja­pan's cen­tral bank opted yes­ter­day to keep its poli­cies mostly un­changed, with some tech­ni­cal ad­just­ments to how it con­trols in­ter­est rates.

The ad­just­ments to the Bank of Ja­pan's poli­cies were widely an­tic­i­pated, though many an­a­lysts had been ex­pect­ing an in­ter­est rate cut or other more ag­gres­sive moves to perk up slug­gish growth in the world's No. 3 econ­omy.

The BOJ meet­ing wrapped up just hours be­fore the US Fed­eral Re­serve was due to an­nounce its lat­est pol­icy de­ci­sion. Econ­o­mists think the Fed will leave rates un­changed when it ends its two-day meet­ing yes­ter­day.

While the Fed is weigh­ing an even­tual in­crease in rates, the Bank of Ja­pan's pol­icy state­ment said its short-term pol­icy rate will re­main at neg­a­tive 0.1 per­cent. The cen­tral bank is charg­ing that rate on ex­cess re­serves it holds for banks to en­cour­age them to lend more and said it might cut it fur­ther.

The cen­tral bank said it will con­tinue its as­set pur­chases at a rate of about 80 tril­lion yen ($787 bil­lion) a year. But it will aim to push yields on long-term Ja­panese gov­ern­ment bonds higher, while keep­ing short-term rates low. For now that means at zero per­cent or be­low.

The tin­ker­ing with pol­icy high­lights the lim­its of the cen­tral bank's op­tions but may al­le­vi­ate con­cern the BOJ is "crowd­ing out" other in­vestors with its mas­sive pur­chases of gov­ern­ment bonds.

Push­ing yields on longer-term se­cu­ri­ties higher will be a boon to life in­sur­ers and other big in­sti­tu­tional in­vestors that have seen in­vest­ment re­turns plunge af­ter the BOJ im­posed its neg­a­tive in­ter­est rate pol­icy in Fe­bru­ary.

In re­ac­tion to the BOJ de­ci­sion the bench­mark Nikkei 225 in­dex jumped 1.9 per­cent yes­ter­day, to 16,807.62.

The Bank of Ja­pan's "new frame­work" to strengthen mone­tary eas­ing also it to push­ing past the 2 per­cent in­fla­tion tar­get it set more than three years ago.

In a 61-page as­sess­ment, the BOJ said its "quan­ti­ta­tive and qual­i­ta­tive eas­ing," mone­tary pol­icy, known as QQE, had suc­ceeded in end­ing de­fla­tion, or fall­ing prices. But it said that fos­ter­ing the scale of "in­fla­tion ex­pec­ta­tions" that might en­cour­age con­sumers and busi­nesses to spend more was tak­ing time.

"With re­gard to the out­look, slug­gish­ness is ex­pected to re­main in ex­ports and pro­duc­tion for some time, and the pace of eco­nomic re­cov­ery is likely to re­main slow," it said.

An­a­lysts ex­pect the BOJ to even­tu­ally slash its pol­icy rate fur­ther.

"With un­der­ly­ing in­fla­tion set to fall to zero in com­ing months, we ex­pect the pol­icy rate to even­tu­ally fall to mi­nus 0.4 per­cent," Mar­cel Thieliant of Cap­i­tal Eco­nom­ics said in a com­men­tary.

The world's other ma­jor cen­tral banks have spent years strug­gling to re­ju­ve­nate their economies, to raise in­fla­tion and get busi­nesses and con­sumers to spend more.

In the United States, the Fed­eral Re­serve is ex­pected to raise short­term US in­ter­est rates — but prob­a­bly not be­fore a meet­ing in De­cem­ber.

In De­cem­ber 2015, the US cen­tral bank raised rates for the first time since 2006. It was widely ex­pected to hike rates sev­eral more times this year, has held off as the US econ­omy sput­tered, hob­bled by weak global growth and a strong dol­lar that makes Amer­i­can goods pricier in for­eign mar­kets.

Mean­while, Euro­pean Cen­tral Bank chief Mario Draghi is ask­ing for help from the gov­ern­ments of the 19 coun­ties that use the euro cur­rency. The ECB on Sept. 8 left its ag­gres­sive stim­u­lus mea­sures un­changed. It called on Euro­pean gov­ern­ments to spend more on in­fras­tru­ture projects and to en­act re­forms to make their economies more ef­fi­cient and busi­ness­friendly.

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