Japan's central bank shocks markets with yield policy change, yen strengthens
BoJ
The Bank of Japan in its policy statement on Tuesday shocked markets by expanding its target band for interest rates, causing the yen to rise, bond yields to go up and stock prices to fall.
In its statement, the central bank said it will now allow yields on 10-year government bonds to move up or down on the basis of 50 basis points instead of 25 basis points around its 0 per cent objective, Nikkei Asia reported.
The BoJ Governor Haruhiko Kuroda told reporters, "This is neither a tightening nor a step toward an exit. This is a tweak to the monetary policy operation." He added that the changes are done responding to the changes in the market. "We did this to support the economy and will explain it to market players as much as necessary."
Bank's board decided to keep its main monetary policies unchanged.
Amid the tweaking of monetary policies, the yen soared to a four-month high against the dollar. The policy also comes after a decline in the US interest rates and market policies.
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The move sent the yen to 132 per dollar making its strongest level since August.
The bank added that the policies were modified in order to improve the market functioning in the Asian country, encouraging a smoother yield cure formation.
The yield curve allows the bank to purchase Japanese government bonds with yields of zero and shirt term rates of minus 0.1 per cent.
The move also caused the benchmark Nikkei 225 average to fall y 2.5 per cent, raised the yen from a range of 137 to about 132 against the dollar, and spiked the yield in the 10-year JCB to 0.46 per cent.
Over the past several months, the pressure on the central bank to tighten the policy has decreased as the yield on the 10-year US Treasury has declined from 4.2 per cent to 3.4 per cent.
Japan's inflation is at a 40-year high with consumer prices increasing by 3.6 per cent in October which is far beyond BoJ's 2 per cent target.
(With inputs from agencies)
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