The Bank of Japan surprised investors by joining other central banks with a measure to support climate change mitigation, while standing pat on its main policy levers.
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The BOJ starts its two-day meeting Thursday, with a majority of economists expecting the bank to extend its special COVID-19 funding program to help struggling businesses.
"It’s hugely symbolic that even Kuroda can’t hit the target after a decade,” said a chief economist and former Bank of Japan official.
BOJ officials see a strong recovery in the United States and China as a driving force for Japan’s export-reliant economy.
Former board member Makoto Sakura's comments indicate the BOJ’s bar for lowering rates is as high as ever and that weak inflation alone won’t be enough to trigger such a move.
The bank also said it would offer lending incentives if it lowered its target rates.
The range around the 10-year yield target is a key focus for markets as the central bank looks to enhance the sustainability of its monetary stimulus.
But with the Nikkei stock index around three-decade highs, some lawmakers and economists are asking why it’s necessary to keep propping up the market.
BOJ Gov. Haruhiko Kuroda has a history of delivering surprises, so investors have been left guessing about what the policy assessment announced last month will deliver, if anything.
To gain eligibility for the interest payments, regional banks must make decisions on merging or show they have improved their profitability.