Bank of Japan Shocks Financial Markets—but Will It Affect Global Economy?
News Analysis
The Bank of Japan (BoJ) shocked Asian financial markets on Dec. 20 when it widened caps for a benchmark government bond yield.
The central bank announced that it would permit the yield curve on the 10-year Japanese government bond to range 50 basis points to either side of its zero percent target (pdf). That’s up from the previous limitation of 25 basis points.
Officials modified the conduct of the yield-curve control to “improve market functioning and encourage a smoother formation of the entire yield curve, while maintaining accommodative financial conditions.” The BoJ refrained from referencing anything related to inflation.
In other policy directives, the central bank left the benchmark interest rate unchanged at negative 0.1 percent (pdf). Meanwhile, the institution plans to increase the amount of government bond purchases to 9 trillion yen ($68.1 billion) from 7.3 trillion yen ($55.2 billion). The BoJ also intends to buy 10-year bonds at 0.5 percent every business day through fixed-rate purchase operations. …