Kuroda takes pains to tweak policy as loosening lengthens
Nikkei -- Aug 01
The Bank of Japan's decision on Tuesday to continue "powerful monetary easing" but to also allow long-term interest rates to move in a wider band reflects the dilemma faced by Gov. Haruhiko Kuroda.

With external uncertainties looming -- stemming from the trade tensions between the U.S. and China -- and a domestic political calendar that includes the ruling party's leadership race in September, upper house elections next summer and a consumption tax hike soon to follow, the central bank felt a need to act. But it was careful not to send the wrong message.

A major topic of this policy meeting was mitigating the accumulated side effects of years of easing, which were becoming a burden on bank earnings.

In its first policy adjustment since introducing yield curve control in September 2016, the central bank indicated it would permit the range of long-term interest rates to double to around 0.2% above and below its target of zero, Kuroda told reporters after the two-day policy board meeting.

Kuroda said the goal is to improve the "sustainability" of easing.

But the central bank also adopted new forward guidance on policy, pledging to maintain "current extremely low levels of short- and long-term interest rates for an extended period of time."

Leading up to the policy meeting, news reports had speculated that the bank was ready to move away from its ultraloose monetary policy. Some BOJ officials had worried that markets would interpret the relaxed interest rate policy as laying the groundwork for an end to easing.

Bank of Japan Gov. Haruhiko Kuroda explains the central bank's decisions on Tuesday.

The forward guidance aims to provide clarity on future policy. A representative at a major bank took the measure as a warning to "brace for a long campaign of negative rates."

Kuroda said the guidance shut down speculation about a possible rate hike and that the central bank has "absolutely no intention" of raising rates.

Financial institutions welcomed the widened range of long-term rates, anticipating higher yields that would make bond trading more profitable. Koji Fujiwara, chairman of the Japanese Bankers Association and CEO of Mizuho Bank, issued a statement praising the BOJ's consideration regarding the negative impact of easing.

Bank stocks climbed as word emerged of the BOJ's stance, but they closed lower across the board in Tuesday's trading after the details came to light.

News source: Nikkei
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