Investment Clock insights

Bank of Japan announcement

Ian Kernohan

21 September 2016

The Bank of Japan (BoJ) did not cut interest rates or increase the amount of domestic government bond purchases, as some commentators had expected, but it did surprise the market by adopting a cap for 10 year yields, and declared an intention to overshoot its 2% inflation target.

This pledge to be irresponsible is a bold attempt to shift inflation expectations, which have remained far too low for comfort, although markets will be rightly sceptical after so many years of failure to meet this target. The BoJ also left the door open for further rate cuts, and will now buy fewer very long bonds, in an effort to steepen the yield curve and ease pressure on the banking sector.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.