Bank of Japan has reinforced its monetary easing programme by introducing another innovative tool. This time, the Japanese central bank has set a cap on the 10-year bond yields. Over the last eight years after the financial crisis, central banks were innovating new policy instruments under unconventional monetary policy tag.
The main component of the new ceiling of ten year bonds is the “yield curve control” under which the bank will seek to control short-term and long-term interest rates.
Japan is going through sharp fall in economic activities reflected by very low GDP growth rate. Accompanying the poor income growth Japan is reeling under deflationary pressure.
Japan’s GDP grew by 2% in the first quarter of this year, but slowed to a meagre 0.2% for the June ending quarter.
Earlier this year, Japan has adopted negative interest rate policy to inject liquidity into the system. Here, the BoJ charged an interest rate of 0.1% from the money that commercial banks keeps as reserves with the central bank.
Besides it has launched massive bond buying program; but economic growth has not picked up and only profits of commercial banks suffered.
In the latest intervention, the Japanese central bank declared that it will continue with monetary easing until realizing the inflation target of 2%.