The Bank of Japan (BOJ) kept its basic interest rate unadjusted at the conclusion of its two-day monetary policy review meeting in March on Friday.
The central bank kept the base rate stable at -10bps, keeping its promise to buy J-REITS at an annual rate of up to JPY180 billion.
The BOJ clarified in a policy statement that the 10-year JGB’s yield may rise or fall 0.25% (not 0.2%) around its 0% target.
Markets expected the Japanese central bank to allow long-term bond yields to fluctuate more around its target, while suggesting a “stealthy” reduction in its huge purchases of exchange-traded funds (ETFs).
Summary of declaration
The BOJ adjusts guidance on the long-term interest rate target.
It will establish an interest scheme to promote loans.
In the scheme, interest rates, which will be linked to the basic interest rate, will be applied to a certain amount of the current account balances of financial institutions.
It will introduce fixed rate purchase transactions for consecutive days as a powerful tool to set the upper rate limit when necessary.
It will maintain a cap of 12 trln yen for the ETF and 180 billion yen for the REIT even after the pandemic has disappeared.
It does not change your future interest rate guidance.
Suitable for maintaining YCC and QQE to achieve 2% inflation.
Effective to buy ETF, REIT massively when markets are destabilized enormously.
It will maintain its commitment to overcome the expansion of the monetary base.
Cut rates are an important option as an additional agile mitigation measure.
It will introduce a scheme that mitigates the impact on financial institutions’ profits at the time of rate cuts, depending on the value of their loans.
They will apply certain interest rates as an incentive to the current account balances of financial institutions.
Make adjustments to the tiered deposit reservation system.
It will modify the method for calculating complementary macro balances under the complementary deposit facility.
It clarifies that long-term rates may move 0.25% above and below its long-term rate target, but it will not apply this rule rigidly when rates are briefly below day-to-day movements.
Excessive declines in superlong yields can hurt long-term economic activity.
Market reaction
The yen witnessed the sale of the fact being traded after the BOJ changed the yield and ETF target, as it was already priced by the markets.
USD / JPY jumped from its lows and briefly rebounded to level 109 with the BOJ announcement, modestly stable on the day.