Bank of Japan tweaks monetary policy

1 August, 2018 12:00 AM printer

TOKYO: Japan’s central bank said Tuesday it would make adjustments to its ultra-loose monetary policy for the first time in nearly two years, and revised down its inflation forecasts.

The Bank of Japan maintained its 2.0 percent inflation target, but in an acknowledgement of the difficulty it has had achieving the figure, it lowered its forecasts through fiscal 2020, reports AFP.

It also said it would adjust its purchases of exchange-traded funds, and introduce flexibility to its bond buying, in a nod to concerns about the effects of its monetary easing programme.

In a statement, the central bank said it would seek to keep yields on benchmark 10-year bonds at around zero percent, but added “the yields may move upward and downward to some extent” and “the Bank will conduct purchases in a flexible manner”.

The bank may also “increase or decrease the amount of purchases depending on market conditions”, it said, in the first adjustment to its programme since September 2016.

The BoJ has struggled despite years of targeted monetary policy to achieve the 2.0 percent inflation seen as necessary to turbocharge the world’s third largest economy.

In a nod to those difficulties it revised down its inflation forecasts, saying it now expected inflation for fiscal 2018 of 1.1 percent, rising to just 1.5 percent in fiscal 2019 and 1.6 percent for fiscal 2020.

That will leave it far from reaching the 2.0 percent target by 2020, which until recently the central bank insisted was still possible.

The BoJ has kept its super-loose asset-buying and negative interest rate policy even as the US Federal Reserve and European Central Bank have tightened their policies.

BoJ governor Haruhiko Kuroda has insisted the current policy is sustainable but said the Bank would study its negative impact on the market.

Market analysts have said the BoJ’s massive easing programme is already skewing the market for the Japanese government bonds as well as the country’ stocks market to a lesser extent.