Bank of Japan Surprises Markets With Policy Tweak

The Bank of Japan said Tuesday that it would tweak its bond buying policies and step up asset purchases — a surprise move as Japan faces economic pressure from rising inflation and a weak yen.

The change was seen as a sign that Japan might relax its adherence to ultralow interest rates. That commitment has made the country a global outlier as other central banks around the world have pushed up their rates in an effort to battle inflation.

In a policy statement, the Bank of Japan said it would allow the yield on its 10-year bonds to move in a range of plus-or-minus 0.5 percent, broadening the band from 0.25 percent, as it seeks to promote trading of domestic bonds, which has stagnated. At the same time, the bank will increase its monthly bond purchases to $67 billion from around $55 billion, the statement said.

The action shocked experts. Analysts had predicted that Japan’s famously inflexible central bank would hold fast to its current monetary settings through at least the spring, when the bank’s current governor, Haruhiko Kuroda, will step down.

“The consensus was entirely that the BOJ would stand pat,” said Stefan Angrick, a senior economist at Moody’s Analytics.

In its statement, the bank said that it had made the change in light of deteriorating bond market conditions caused, in part, by “volatility in overseas financial and capital markets.”

For years, the Bank of Japan has limited yields to a tight range to keep interest rates low. But the restrictive settings, maintained with enormous buying operations, brought the trading of some government bonds to a near standstill.

The bank said that the policy change would help support an ultraloose monetary policy that has for years provided households and businesses with a steady flow of cheap money. One of the pillars of that policy — near-zero interest rates — will remain unchanged, the bank said in its statement.

In a news briefing following the statement’s release, Mr. Kuroda said that it was “too early to consider reviewing or exiting” its current easing policies.

Japan, the world’s third-largest economy, has felt the sting of skyrocketing food and energy prices due to supply chain snarls and the war in Ukraine. Inflation, while much lower than in other parts of the world, was at 3.6 percent in October, putting a substantial burden on households that became accustomed to decades of price stability and wage stagnation.

Making matters worse is a weak Japanese yen. Earlier this year, the currency traded at a decades-long low against the dollar, placing even more price pressure on the economy, which is heavily dependent on imports.

The yen’s weakness has been exacerbated by the Bank of Japan’s insistence on sticking to ultralow interest rates even as other central banks around the world have precipitously raised their own in an effort to tamp down runaway inflation. The gap has devalued the yen as investors move money out of Japan in search of higher returns.

The currency has regained lost ground in recent weeks as other central banks have slowed their interest rate increases. It jumped in value after Tuesday’s announcement, rising by more than 3 percent. A surge in the currency’s value could help reduce inflationary pressures on the economy.

Mr. Kuroda has said that he would stick to the bank’s current rate policy until the bank achieves sustainable, demand-driven inflation of 2 percent, a level that policymakers argue would create a virtuous cycle of growing corporate profit and wages. While current levels have exceeded that target, the bank argues that the price increases are largely driven by supply constraints, not the heightened demand it aims to create.

In its statement, the bank said that it would maintain its current inflation target until it could be maintained in a “stable manner,” adding that it would “not hesitate to take additional easing measures, if necessary.”

Hisako Uenocontributed reporting.

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