Japan central bank tweaks monetary policy

TOKYO

Japan’s central bank tweaked its longstanding monetary easing program yesterday, in a surprise move that saw the yen strengthen quickly against the dollar while Tokyo stock markets fell.    

The change marks a rare shift of gears for the dovish central bank, which has largely left its policy intact even as counterparts in other major economies hike rates to tackle inflation.  

After a two-day policy meeting, the bank said it would widen the band in which it would allow rates for 10-year Japan government bonds to move, saying it would “improve market functioning”.

The move saw the yen strengthen rapidly against the dollar, with the greenback falling from a daily high of 137 yen to 133 yen within minutes of the decision.    

The announcement came during the morning break in Tokyo trade, but the key Nikkei 225 index plunged as it reopened, falling as much as three percent before recovering slightly.    

Few had anticipated the shift, with all 47 of the economists surveyed by Bloomberg ahead of the decision saying they expected no change in policy.    

The bank left the rest of its longstanding loose monetary program intact, including its years-old inflation target of two percent.    

Prices in Japan have risen sharply this year, with the consumer price index in October at 3.6 percent, the highest in four decades.  

The BoJ has come under pressure to move away from its ultra-loose policy as central banks in other major economies hike interest rates to tackle inflation.   

The resulting differential has seen the yen nosedive about 20 percent against the dollar this year.    

Hideo Kumano, chief economist at Dai-ichi Life Group, said the decision showed the bank recognised its existing policy was no longer tenable.    

“It has been unrealistic to try to cap the long-term yield with the fixed-rate bond-buying operations at 0.25 percent,” he told AFP.    

“It seems to me that the bank wanted to create a little bit of a sense of policy flexibility or room for policy choices and pass the baton to the next governor,” he added