Sept 21 (Reuters) - The Bank of Japan added a long-term interest rate target to its massive asset-buying programme on Wednesday, overhauling its policy framework and re-committing to reaching its 2 percent inflation target as quickly as possible.
The BOJ maintained the 0.1 percent negative interest rate it applies to some of the excess reserves that financial institutions park with the central bank.
But it abandoned its base money target and instead adopted “yield curve control” under which it will buy long-term government bonds to keep 10-year bond yields at current levels around zero percent.
Following are comments from BOJ Governor Haruhiko Kuroda at his post-meeting news conference:
“It’s true that more than three years have passed (since we deployed QQE). But there’s absolutely no change to our commitment to achieve 2 percent (inflation) at the earliest date possible.
“With the yield curve control, we can achieve declines in real interest rates that are most desirable for the economy.
“It has been said that it’s difficult for central banks to control long-term rates. But the Fed, the ECB and the BOJ have all been purchasing government bonds to influence long-term interest rates in the aftermath of the Lehman crisis...
“I won’t say we can fully control long-term rates like the way we control short-term rates. But central banks have already been taking steps to directly influence long-term rates. The BOJ has done so too and clearly has been successful.”
“I’m confident we can succeed with our yield curve control.”
“We won’t hesitate to adjust monetary policy with an eye on economic and price developments.
“We will ease further when necessary. We can cut short-term rates, lower the long-term rate target, buy more assets or if conditions warrant, accelerate the pace of expansion in monetary base. There’s room to ease further with the three dimensions of quantity and quality of assets as well as interest rates.
“The new framework was created by strengthening existing programmes like QQE and negative rates with QQE. There’s still steps available (to achieve 2 percent inflation). I don’t think the BOJ has become cornered.
“The base money target has had a certain effect on the economy. It’s very effective in the long-term perspective. But in the short-term, there isn’t a clear link between the base money target and inflation expectations. That’s why the new policy framework can respond to changes in the economy and prices more flexibly.
“We’ve changed the policy target. But we haven’t abandoned our previous policies. We’ve simply strengthened them.” (Reporting by Leika Kihara, Stanley White and Tetsushi Kajimoto; Compiled by Kim Coghill)