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Bank of Japan’s ‘yield curve control’ gets mixed reception

“After its much-awaited ‘comprehensive assessment’, the Bank of Japan delivered some incremental changes to monetary policy, mainly by introducing ‘yield curve control’,” Alimi said. “The outcome was close to our expectations and kills two birds with one stone. One, it addresses concerns in the financial sector by ensuring reasonable steepness of the curve; two, it makes the qualitative and quantitative easing programme more sustainable over time. Overall, today’s move looks to us as one step back from the front line and towards a much more hands-off BoJ.”

Asset allocation strategist at Rathbones Ed Smith was another who had limited enthusiasm for the announcement.

“There are no changes to the amount of QQE purchases, holding at an annual Y80trn, keeping the amount of equity ETFs steady too at the Y6trn announced in July,” Smith said. “Again, this is a little disappointing given the marked fall in inflation expectations and the persistent strength of the Yen. Offering some comfort, the language used in the statement implied that there is no ceiling to the amount of future asset purchases. The policy rate was held at -0.1% – as expected, but it was flagged that the rate could be cut in the future, presumably after an assessment of how the curve steepening operations alleviates pressure on – and market sentiment towards – bank profit margins.”

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