The Central Bank of Japan has decided on maintaining its threshold rate of interest at minus 0.1%, while enhancing its bond programme to allow for greater flexibility because of higher price and economic certainties. It will now be purchasing 10-year Japanese-government bonds at 1% daily, a raise from the 0.5% under the “yield curve control programme” that it had earlier imposed. The Central Bank of Japan also looks forward to maintaining a long term rate of interest at zero with the intention of holding 2% inflation. However, 3% inflation in Japan has lagged behind Europe and the United States.
The Central Bank of Japan chose Friday to keep its threshold rate of interest at minus 0.1%, but affirmed that it will fine tune the bond purchases to allow for greater flexibility given the “high certainties” for the prices and the economy.
The Central Bank of Japan claimed that it needed a more agile approach for keeping the financial stability as it proceeds towards a goal to keep inflation around 2%.
It also assured that it might offer to buy Japanese-government bonds of ten years at 1% per business day, insead of its upper limit that was earlier imposed under the “yield curve control programme.”
After the Central Bank of Japan’s announcement, 10-year old government bond yields rose to 0.57%.
The reason behind this ultra-lax monetary policy is to keep the long term rate of interests at around zero percent, as it claimed in a statement.
“We still think that a slowdown in inflation will convince the bank to keep its short-term policy rate unchanged over the coming months,”
Capital economists claimed in a research note. But it said that given signals that prices have risen additionally with the wages,
“the risks of the Bank tightening policy in earnest are rising.”