Factbox: Key changes made to BOJ's policy framework on July 31

TOKYO (Reuters) - The Bank of Japan took measures to make its massive stimulus program more flexible and pledged to keep interest rates low for the time being on Tuesday, reflecting its forecast that it would take time for inflation to hit its 2 percent target.

Below are key decisions the BOJ made at its two-day rate review on Tuesday:


*The BOJ adopted “forward guidance” on policy, committing to keep interest rates “very low” for an “extended period of time.”

*The central bank said it will guide rates low with an eye on uncertainties over the economic outlook, such as the impact of next year’s scheduled sales tax hike.


*The BOJ made no change to its yield targets, which are set at minus 0.1 percent for short-term rates and “around zero” for 10-year government bond yields.

*It added guidance saying the BOJ will allow long-term yields to fluctuate more reflecting economic and price developments. This means the BOJ may allow 10-year yields to move above 0.11 percent, which markets consider as the bank’s line in the sand as it repeatedly stepped in to cap yields at this level.

*The BOJ also added a phrase in its statement that it will conduct its bond-buying operations in a “flexible manner,” suggesting it will continue to steadily slow the pace of buying.


*The BOJ maintained the pace of buying for exchange-traded funds (ETF) and trust funds investing in real estate (REIT) at 6 trillion yen ($53.93 billion) and 90 billion yen per year, respectively.

*But it said the amount of purchases for these assets could fluctuate depending on market conditions, signaling that the purchases could slow from time to time if asset prices are rising and do not need central bank support.

*The BOJ said it will change the composition of its ETF buying to expand purchases of Topix-linked ETFs. From Aug. 6, it will increase buying of Topix-linked ETFs to 4.2 trillion yen per year from 2.7 trillion yen. It will instead reduce by half to 1.5 trillion yen buying of ETFs linked to three indices - the Topix, Nikkei 225 and JPX Nikkei 400.

*The composition change is aimed at fixing distortions in markets, which made the BOJ a top shareholder for some big Japanese companies.


*The BOJ will reduce the balance of reserves financial institutions park with the central bank, for which a 0.1 percent negative rate is applied. At present, the bank imposes negative rates on roughly 10 trillion yen of reserves. That amount will likely fall to around 5 trillion yen from August.

($1 = 111.2500 yen)

Reporting by Leika Kihara; Editing by Sam Holmes