Global investors that earlier this week bet on Japan’s monetary tightening might have to eat their words: Bank of Japan (BOJ) has committed to continued monetary stimulus while aiming to ameliorate the side effects on banks’ margins.
BOJ governor Haruhiko Kuroda announced on Tuesday that he is focused on “continuous powerful monetary easing”, with tweaks only to relive commercial banks from tailwinds of a negative interest rate. The -0.1% interest rate will now apply to fewer reserves than before.
As for 10-year bonds, the BOJ maintains the target 0% rate but allows the yield to fluctuate to as much as 0.2%.
BOJ’s total purchases of exchange-traded funds remain at 6 trillion yen ($54 billion) per year, but the central bank has hinted that it might slow down its buying of risk assets. But those linked to the Topix will increase to 4.2 trillion yen, from 2.7 trillion yen.
BOJ commits to maintain extremely low levels of short- and long-term interest rates for an "extended period of time".
The central bank's decision to continue with easy monetary policy comes amidst a lowering of its inflation projections. From 1.3%, its estimate of core consumer price growth is down to 1.1% for the current fiscal year through March. The estimate for fiscal 2019 has been revised downwards to 1.5 % (from the previous estimate of 1.8%), while fiscal 2020's was lowered to 1.6 % (compared to an earlier estimate of 1.8%).