Bank of Japan Policy Tinkering Explained
TOKYO – Japan’s central bank chose to keep its policies for sustaining a stronger economy mostly unchanged at a policy meeting that ended Wednesday. But it said it will aim to push long-term interest rates higher. Here are some key points:
WHAT IS THE BANK OF JAPAN ALREADY DOING?
Like the U.S. Federal Reserve, the Bank of Japan has been trying to get consumers and companies to spend more. One way to do that is to keep interest rates very low, to encourage borrowing. Another is pumping cash into the economy to push inflation higher. The idea is that people will make purchases earlier to avoid price increases in the future.
WHAT IS NOT CHANGING?
The central bank plans to keep buying about 80 trillion yen ($787 billion) in assets a year to put more money into circulation. It also is keeping its key policy rate, the interest on excess reserves it holds for banks, at minus 0.1 percent.
WHAT IS CHANGING?
The Bank of Japan says it will adjust its purchases of government bonds, the main asset it is buying, to help push yields on longer-term, say 20-year or 30-year bonds higher. That will help life insurers and other financial companies earn more from their huge holdings of those bonds.
WHAT LIES AHEAD?
Japan’s inflation rate is still near or below zero, and the central bank says it may cut its policy rate further as it strives to exceed a 2 percent inflation target. It could also increase how many government bonds and other securities it buys. So far, unlike with the Fed, there is no talk of ending its asset purchases or increasing interest rates on short-term investments and lending.