BOJ raises ceiling for long-term rates, monetary easing to stay

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The U.S. dollar was slightly lower against the Japanese yen on Monday, as investors braced for the possibility that the Bank of Japan will announce changes to its monetary easing policy on Tuesday at the conclusion of a two-day meeting.

"What the Bank of Japan has done today has signaled a cap on global bond yields and indicated the appetite for risk may have some more room to run", said Viraj Patel, an FX strategist at ING in London.

At the same time, the central bank delivered a range of adjustments created to alleviate strains from negative rates and asset-buying on commercial banks and reduce market distortions.

"The BOJ decision was not meant to raise interest rates", said Kuroda at a press conference, adding that the move was aimed at increasing the sustainability of the bank's massive stimulus program.

Ahead of the policy announcement, market speculation had grown that the central bank might raise the prospect of an interest rate rise - the absence of any such action or guidance on Tuesday drove a decline in bond yields and helped stocks claw back earlier losses.

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The BOJ pledged to maintain its short-term interest rate target at minus 0.1 percent and made a decision to guide 10-year JGB yields around zero percent. It also keeps a loose pledge to increase its government bond holdings by 80 trillion yen ($720.79 billion) per year.

As the side effects of its policies piled up, the central bank faced pointed questions about how long it could keep them in place.

Spot gold XAU= eased 0.2 percent to $1,220.32.

The changes, although small, would be the first since 2016 and the latest sign Governor Haruhiko Kuroda is gradually walking away from his radical stimulus program deployed five years ago to shock the public out of a persisting deflationary mindset.

The BoJ added language to its bond buying programme stating that "the yields may move upward and downward to some extent mainly depending on developments in economic activity and prices".

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An increase in the number of women and seniors entering the job market and a push by companies to streamline operations through automation are keeping Japan's wages and inflation from rising significantly, the central bank said on Wednesday. The estimate for fiscal 2019 was cut to 1.5 percent, from 1.8 percent, while fiscal 2020 was trimmed to 1.6 percent, from 1.8 percent.

There is anticipation that the BOE will hike rates on Thursday for the second time since the 2008 financial crisis. By Japanese bond standards, these are significant moves.

The BOJ released a detailed report on Tuesday analyzing why inflation hadn't risen as expected.

"But it's hard to guess what the BOJ will do", he said.

Officials at the Bank of Japan have chose to continue their massive easing policy in a bid to achieve a 2-percent inflation target.

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