Bank of Japan launches new growth initiative

The Bank of Japan (BoJ) has kept its benchmark interest rate unchanged at -0.1%, but indicated that further rate cuts are a “possible option” and introduced two adjustments to its monetary easing policy.

The central bank, which is attempting to kickstart Japan’s economic growth, promised to cap 10-year government bond yields at zero per cent – committing it to buying any bonds offered with a nil return, while preventing them from slipping into negative yield – and will also aim to deliberately overshoot its target inflation rate of 2%.

Since Japan’s asset price bubble bust at the end of the Eighties, the country has regularly attempted to escape deflation. The headline inflation rate for July was -0.4%

“The price stability target of 2% has not been achieved … [and] this is largely due to developments in inflation expectations,” the BoJ stated.  “Inflation expectations need to be raised further in order to achieve the price stability target.”

In response, the bank will maintain its government bond buying “more or less in line with the current pace” of 80 trillion yen (JPY) (US$787bn; £605bn) a year. However, fewer very long-term bonds will be purchased to make it easier for banks to earn profits by allowing the yield curve to steepen.

The BoJ became the latest central bank to introduce negative interest rates in January this year, in a bid to persuade commercial banks to use their reserves to lend to business. Some analysts suggested that its decision not to push rates further below zero or expand asset purchases was evidence that governor Haruhiko Kuroda has limited scope for additional easing measures.


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