Bank of Japan changes policy framework in fight against deflation

Japan’s central bank has taken a surprise step, launching a 10-year interest rate target to step up its fight against deflation.

Bank of Japan governor Haruhiko Kuroda (centre) overseas a policy board meeting. Pic: AFP

Japan’s central bank has taken an unexpected step, launching a 10-year interest rate target to step up its fight against deflation, following an internal review of existing measures that failed to achieve 2 per cent inflation in a promised two-year time frame.

The Bank of Japan said it would start targeting 10-year interest rates, committing to keep them around zero as part of a new policy framework aimed at stoking inflation.

The BoJ also said it would continue quantitative easing until inflation “exceeds” 2 per cent, effectively strengthening its commitment to continue aggressive easing.

At the latest policy meeting, the BoJ left its deposit rate unchanged at minus 0.1 per cent.

The bank imposed the charge on certain yen deposits held by commercial banks in February, partly to encourage more lending. But the measure has delivered only limited results and has raised worries that murky profit prospects might cause banks to reduce loans instead.

The BoJ said it could cut the rate further as a measure to step up its easing action.

Among other measures it said it may take in the future were further expansions of the monetary base.

The board kept unchanged its target of buying ¥80 trillion of Japanese government bonds per year.

The decision comes after an assessment lasting several weeks of the measures the BoJ has used so far to generate inflation and support the economy.

With Megumi Fujikawa

Dow Jones Newswires