The Bank of Japan shifted the focus of its monetary stimulus away from a rigid target for expanding the supply of money, to controlling the shape of yields across different maturities.
Governor Haruhiko Kuroda led his board in keeping the benchmark rate for a share of bank reserves at negative 0.1 percent. The central bank said that the monetary base target, which previously had been set at annual increases of 80 trillion yen ($780 billion), may now fluctuate in the short term as policy makers seek to control the yield curve.
The BOJ scrapped a target for the average maturity of its government bond holdings. Board members also pledged to expand the monetary base until inflation is stable above the 2 percent target -- committing to an overshoot of consumer-price gains.
The BOJ has been the most daring of global central banks in using monetary stimulus to confront deflationary pressures and stagnation, but Kuroda recently began to publicly weigh the costs of its extraordinary easing against the benefits, a shift from his "whatever-it-takes" approach of the past three-plus years.
The BOJ also faces questions about the sustainability of its purchases of Japanese government bonds. The central bank now owns a third of outstanding JGBs. The pace of its buying is draining the market of supply, and many commercial banks are running out of JGB inventory to sell
Possible options for additional easing
With regard to possible options for additional easing, the Bank can cut the short-term policy interest rate and the target level of a long-term interest rate, which are two key benchmark rates for yield curve control. It is also possible for the Bank to expand asset purchases as has been the case since the introduction of QQE. Moreover, if the situation warrants it, an acceleration of expansion of the monetary base may also be an option.
Reference : Bloomberg
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