BoJ surprises markets with new easing measures

BoJ surprises markets with new easing measures

The Bank of Japan has outlined new quantitative and qualitative easing (QQE) measures in an attempt to “raise inflation expectations in a more forceful manner”. 

At its latest meeting the central bank announced plans to place “yield curve control” at the core of its monetary policy framework. This includes keeping short term policy interest rates at -0.1 per cent, with the note that “the bank will cut the interest rates further if judged necessary”. 

The BoJ also stated it will purchase Japanese Government Bonds (JGBs) so that the 10-year JGB yields “will remain more or less at the current level”, which is around zero per cent. 

In the policy statement the central bank stated it would continue to conduct purchases more or less line with the current pace, of about 80trn yen per year, while JGBs with a wide range of maturities will be eligible for purchase although the guideline for the average remaining maturity of the Bank’s JGB purchases will be abolished. 

The bank stated it will continue with the “QQE with yield curve control” for “as long as it is necessary” to achieve the 2 per cent inflation target and to maintain it in a stable manner. 

It also outlined possible further easing measures could include further interest rate cuts, and expanding the asset purchase programme and “if the situation warrants it” accelerating the expansion of the monetary base. 

Markets have reacted positively to the measures, with the Nikkei 225 index climbing 1.9 per cent and the Topix index gaining 2.7 per cent, while the FTSE 100 index has moved 0.5 per cent higher in early trading in spite of US markets remaining flat ahead of today’s Federal Reserve meeting.