On November 1, the Bank of Japan (TYO:8301) issued a statement on its monetary policy and kept its negative interest rate policy (NIRP) in place. At the Monetary Policy Meeting held on the same day, the Bank of Japan essentially decided on two main issues: yield curve control and guidelines for asset purchases.
On the topic of yield curve control, with a majority vote, the central bank of Japan decided to keep its benchmark short-term interest rate as -0.10%.
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To keep interest rates down over the long term, the bank decided to continue with the purchase of Japanese government bonds (JGBs). The goal of this is to keep the yield on 10-year JGBs around zero.
How much will the Bank of Japan purchase? In its statement, the bank said: “…the Bank will conduct purchases at more or less the current pace — an annual pace of increase in the amount outstanding of its JGB holdings of about 80 trillion yen –aiming to achieve the target level of the long-term interest rate specified by the guideline.” (Source: “Statement on Monetary Policy,” Bank of Japan, November 1, 2016.)
As for its guidelines on asset purchases, the Bank of Japan decided on two policies.
First, the central bank said it will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (REITs). How much? “So that their amounts outstanding will increase at annual paces of about 6 trillion yen and about 90 billion yen, respectively.” (Source: Ibid.)
Second, the Bank of Japan will also maintain a portfolio of commercial paper (CP) and corporate bonds. The central bank plans to keep an outstanding amount of about ¥2.2 trillion of CP and ¥3.2 trillion of corporate bonds.
Over the past several years, the Japanese economy has being showing decline or menial growth. Inflation in the country has been subdued as well. The Bank of Japan has been trying to fight this to bring back growth into the economy, and boost inflation.
At the time of writing, the U.S. dollar and Japanese yen currency pair was trading at 104.24. Year-to-date, the USD/JPY currency pair has declined roughly 13.2%.
