The Nikkei 225 has risen sharply after the Bank of Japan said it would aggressively expand the country’s asset purchase programme in an attempt to stimulate growth.
The central bank has vowed to boost the programme in an attempt to meet its inflation target of 2 per cent in the next two years.
At new Governor Haruhiko Kuroda’s first policy-setting meeting, the central bank shifted its monetary policy target to the monetary base from the overnight call rate, which is set at a range of zero to 0.1 percent. The overnight rate is the rate banks uses to borrow and lend from one another on the overnight market, it is often targeted by central banks to influence monetary policy.
The central bank said in a statement: “The BOJ will conduct money-market operations so that the monetary base will increase at an annual pace of about 60 trillion yen to 70 trillion yen ($645 billion to $755 billion).”
The BoJ also combined two bond-buying schemes, its asset-buying and lending program and the “rinban” bond-buying market operation, to buy government bonds across the yield curve including those with duration of 40 years.
The unexpected changes drove the yen lower and knocked the 10-year bond yield to its lowest in a decade.
The BOJ will revert to open-ended asset purchases and buy over 7 trillion yen ($75 billion) of long-term government bonds per month. The move is being made to ensure the balance of its bond holdings increase at an annual pace of 50 trillion yen.
Prime Minister Shinzo Abe, who was elected last year, has been pushing for the Bank of Japan to do more to help the economy through a combination of big government spending as well as an aggressive central bank asset buying programme.