The Bank of Japan (BOJ) yesterday unveiled a plan to probe more effective ways to achieve its 2 percent inflation target, following in the foot steps of its US and European counterparts as a renewed spike in inflections threatened to derail a fragile recovery.
As widely expected, the central bank kept monetary policy steady and extended by six months a range of measures aimed at easing funding strains of companies hit by COVID-19.
“Given the economy and prices are projected to remain under downward pressure for a prolonged period due to the impact of COVID-19, the BOJ will conduct an assessment on further effective and sustainable monetary easing,” the central bank said in a statement on its policy decision.
Photo: Bloomberg
The BOJ will announce the findings of the review, which it says will not lead to any changes to its yield curve control framework, in March.
The surprise move underscores the growing concern among BOJ policymakers over the diminishing return and rising cost of prolonged easing, such as the hit to bank profits from years of ultra-low rates, analysts said.
“Today’s surprise was the announcement of its plan to review its monetary easing. That would be in line with recent moves by the European Central Bank [ECB] and the [US] Federal Reserve to examine the course of monetary policy,” Mizuho Securities chief market economist Yasunari Ueno said.
“The BOJ must have thought it would be left behind in the global monetary policy trend if it did not follow suit,” he said.
At the two-day rate review ending yesterday, the BOJ kept intact its yield curve control (YCC) targets of minus-0.1 percent for short-term rates and 0 percent for 10-year bond yields.
With the pandemic still hurting the economy, the central bank decided to extend its fund-aid program, deployed in March through May to deal with the immediate hit from COVID-19, by six months.
The package includes increased purchases of corporate debt and a lending scheme to channel money via banks to small firms.
The BOJ said it is ready to extend the deadline of the package further if needed to support the economy.
Reaction in domestic financial markets was generally subdued.
Japan’s economy rebounded in July-September from its worst postwar contraction in the second quarter, though the third wave of infections is dampening prospects for a strong revival.
The pandemic has added to headaches for major central banks, including the ECB and Fed, which have conducted reviews on how to better battle a protracted low-growth, low-inflation environment with their dwindling policy ammunition.
Having conducted its own comprehensive review of its policy framework in 2016, the BOJ has said there was no need to do another examination, despite missing its 2 percent price goal for years.
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