The Bank of Japan (BOJ) kept its key policy rate inappropriate at the end of its two-day meeting on monetary policy in March.
The central bank kept the interest rate constant at -10 bps while maintaining its promise to buy J-REITS at an annual rate of up to JPY 180 billion.
BOJ explained in a policy statement that the 10-year JGB return could rise or fall 0.25% (not 0.2%) around its target of 0%.
Markets expected the Japanese central bank to swing long-term yields more around its target, while indicating that giant purchases of exchange-traded funds (ETFs) were a “stealth”.
Statement summary
BOJ outlines guidelines on long-term interest rate targets.
Will draw up an interest rate scheme to promote loans.
In the scheme, interest rates, which are linked to short-term policy rates, are applied to a certain amount of financial institutions’ current account balances.
Will establish fixed rate operations for consecutive days as a powerful tool to set the upper limit for rates, if necessary.
Will maintain the 12 billion yen ceiling for ETFs, 180 billion yen ceilings for REIT, even after the pandemic subsided.
Make no interest rate forwarding.
Suitable for maintaining YCC and QQE to achieve 2% inflation.
Effective to buy ETFs, REIT on a large scale as markets tremendously destabilize.
Will maintain its agreement on basic money expansion.
Cutting rates are an important option as a quick, additional measure.
Establish a scheme that reduces the impact on the profits of financial institutions at the time of rate reductions, depending on the amount of their lending.
Will apply certain interest rates as an incentive to financial institutions’ current account balances.
Make adjustments to the applied deposit reserve system.
Will change the method of calculating macro addition balances under supplementary deposit facilities.
Explain that long-term rates can move 0.25% up and down from its long-term rate target, but will not apply this rule strictly if rates are briefly suppressed in daily movements.
Excessive decline in super-long yields can hamper long-term economic activity.
Market reaction
The yen seen traded the fact after the BOJ changed the yield and ETF target as it was already priced by the markets.
USD / JPY jumped from the low and regained the 109 level again on the BOJ announcement, modestly flat on the day.