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BoJ Ends Yield Curve Control, Adopts New Policy

Source: Wikipedia

Tokyo, Japan - The Bank of Japan (BoJ) announced a major shift in its monetary policy on Tuesday, ending its yield curve control and negative interest rate policy.

The central bank cited strengthening the virtuous cycle between wages and prices as the main reason for the change, expressing confidence that the 2% price stability target will be achieved sustainably by the end of the Outlook Report forecast period in January 2024.

Under the new framework, the BoJ will manage the short-term interest rate, currently set at 0-0.1 percent, as its main policy instrument. 

Considering the current economic and price outlook, the Bank will maintain accommodative financial conditions. 

The BoJ will also continue to purchase Japanese government bonds (JGBs) at roughly the same pace of ¥6 trillion per month while discontinuing purchases of exchange-traded funds and Japan real estate investment trusts and gradually reducing purchases of commercial paper and corporate bonds.

Japan's economy has been recovering moderately despite weakness in some areas.

Corporate profits have improved, and the labor market remains tight, leading to steady wage increases. 

Year-on-year CPI growth has hovered around 2% recently, mainly due to the lingering effects of cost pass-through and moderate increases in service prices.

Looking ahead, the BoJ expects the economy to continue its moderate recovery, supported by factors such as the materialization of pent-up demand. 

Growth will exceed the potential rate as the virtuous cycle between income and spending strengthens. 

However, the central bank cautioned that uncertainties surrounding economic activity and prices remain extremely high, which warrants close attention to financial and foreign exchange market developments.