- Adding to its already wide-ranging arsenal of of monetary policy tools, the BoJ last week introduced yet another feature: “QQE with yield curve control”. In addition to the short term rate, the new regime aims to peg the long term interest rate (10yr) as well.
- However, targeting interest rates is inconsistent with controlling the quantity of money. What is more, the policy may require asset sales and thus run counter the original policy objective.
- It reveals a sensitivity to banking sector concerns which conflicts with the BoJ’s official price targets. While it may allow the BoJ to delve deeper into negative rates on the short end, the move also undermines the process of asset price reflation.
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