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BOJ policy reboot to target interest rates

Wednesday, September 21, 2016 - 01:48

The Bank of Japan overhauls its monetary policy framework, switching to targetting interest rates and sidelining more than three years of massive money printing that did little to jolt the economy out of a decades-long funk. David Pollard reports.

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A new overhaul from the Bank of Japan. And a new phrase entering the monetary policy lexicon: 'yield curve control'. (SOUNDBITE) (Japanese) BANK OF JAPAN GOVERNOR, HARUHIKO KURODA, SAYING: "The new framework, which centers around a yield curve control, will be more flexible to prices and financial conditions compared to the original methods." The new moves are a shift away from its negative rates - they were left on hold. And from the massive money printing of QE - government bond purchases left at their current level. Instead, the BoJ targetting long-term interest rates. Committing itself to shaping the bond yield curve by targetting its buying at 10-year bonds - a bid to ease pressure on Japan's stressed financial services. SOUNDBITE (English) IHS GLOBAL INSIGHT, DIRECTOR OF SOVEREIGN RISK, JAN RANDOLPH, SAYING: "The BoJ made some very bold statements about where QE or where its monetary policy is going to go. It's going to raise the gears, try something different, something bolder ... Uncharted again - no-one really knows where they're going with this. But it does run the risk of credibility if it's not followed up by actual bold action." Or is this new vision an admission that the three arrows of Abenomics aren't working? Consumer prices posted their biggest annual fall in three years in July - weak demand dogging a Japanese recovery. SOUNDBITE (English) IHS GLOBAL INSIGHT, DIRECTOR OF SOVEREIGN RISK, JAN RANDOLPH, SAYING: "They're using all the available levers - monetary, fiscal and structural - but I think fundamentally they haven't thought through how joined up these policies are to support each other." Japanese shares rose and the yen fell on what could be positive news for banks and insurers. Some also asking though whether this could be the start of a slow BoJ withdrawal from the battle to get inflation back up to target.

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BOJ policy reboot to target interest rates

Wednesday, September 21, 2016 - 01:48