Bank of Japan sets yield curve control

The Bank of Japan has delivered its verdict, which guarantees the expansive approach of monetary policy, however, changing its center of gravity. Market participants have yet to digest the meaning of the statement from the Bank of Japan through the words that Governor Haruhiko Kuroda pronounced during press conference.

The biggest change announced by Japan's central bank regards strategy: now, the Bank of Japan will introduce QE with "yield curve control". The BoJ will no longer check the monetary base, but rates, both short and long-term, buying long-term government bond in order to ensure that the ten-year yields continue to hover around zero, then at current levels.

The amount of the purchase, on an annual basis, was kept unchanged at 80 trillion yen. However, it was eliminated each guideline on expiration range of the same bond object of QE and it kept negative interst rates at -0,1%

In the press conference, 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.

Head of investing at Architas Adrian Lowcock says the policy tweak is supportive of banks’ profitability, but he warns the outlook for the country is mixed. “The outlook for the country is rather mixed. The valuations and earnings of Japanese shares remain attractive relative to global equities but investors remain sceptical of Bank of Japan policy decisions and the strong Yen remains a significant headwind for the country.”

Japan’s gross domestic product grew by 2% in the first quarter of this year, but slowed to just 0.2% for the quarter ending in June.