TOKYO — The Bank of Japan decided on Tuesday to allow long-term interest rates to rise more by widening the band around its yield cap, in a surprise move to address the rising cost of prolonged monetary easing.
But the central bank kept its yield target unchanged and said it will sharply increase bond buying, a sign the move was a fine-tuning of its existing ultra-loose monetary policy rather than a withdrawal of stimulus.
“The BOJ decided to modify the conduct of yield curve control to improve market functioning and encourage a smoother formation of the entire yield curve, while maintaining accommodative financial conditions,” the BOJ said in a statement.
“Through these steps, the BOJ will aim to achieve its price target by enhancing the sustainability of monetary easing under this framework,” it said.
As widely expected, the BOJ kept unchanged its yield curve control (YCC) targets, set at -0.1% for short-term interest rates and around zero for the 10-year bond yield, at a two-day policy meeting that ended on Tuesday.
But it decided to allow the 10-year bond yield to move up and down 50 basis points around the 0% target, wider than the previous 25 point band.
BOJ Governor Haruhiko Kuroda is nonetheless expected to stress at his post-meeting briefing the bank’s resolve to keep ultra-loose policy until inflation sustainably hits 2%, analysts say. (Reporting by Leika Kihara; Editing by Sam Holmes)