Bank of Japan alters policy to spur economic growth

The Bank of Japan has made changes to its stimulus programme, in its latest attempt to spur economic growth.

The bank kept interest rates unchanged, but said it would aim to keep yields on 10-year government bonds at around current levels of zero percent.

The BoJ is also aiming push inflation above the 2% target rate, which was set more than three years ago.

It will continue to buy assets such as government bonds, at the rate of 80tn yen ($787bn; £605bn) a year.

Negative interest rates have squeezed Japan’s financial sector and keeping 10-year bonds at zero percent – as opposed to allowing them to slip into negative territory – should help bank earnings and improve returns for insurers and pension funds.

Japan’s Nikkei share index rose after the announcement, while the yen weakened to about 102.5 yen against the dollar.

Analysts were sceptical about whether the policy changes would be successful.

“They seem to be determined to get the message to the market that they are going to stay on course and continue to buy bonds until they get the inflation rate above 2%,” said Tim Condon, chief economist for Asia at ING.

“I don’t think it’s going to be easy to get the 2%. It’s an Abenomics problem, not the Bank of Japan’s problem.”

Michael Hewson, chief market analyst at CMC Markets UK, said: “Ultimately while these actions may well help the banks, it’s doubtful they will to help the Japanese economy that much, and in some ways it shows how little flexibility the central bank has, given how experimental policy is now becoming.

“To sum up, this morning’s actions by the central bank are not so much an easing as a tinkering around the edges of a failing policy.”

The Bank of Japan kept its benchmark rate on hold at -0.1%. It introducednegative interest rates in January this year, hoping that commercial banks will use their reserves to lend to businesses, in an attempt to counter the country’s economic stagnation.

 

BBC