Weighing the BOJ options

Author: Adam Button | Category: Central Banks

Author: Adam Button

When the BOJ meeting begins in four hours they will have a menu of easing options that includes.

  1. A 2% inflation target
  2. Open-ended easing to reach the target
  3. Buying foreign bonds
  4. Cutting interest on excess reserves below 0.1%

The fourth option could be the the most disruptive in the near-term, explains Reuters Breakingviews.

That [0.1%] payment, which is greater than the yield on two-year bonds, offers banks a big incentive to carry on hoarding cash. Lowering the rate to zero might encourage lenders to deploy funds in riskier credit (helping small companies), longer-duration government bonds (helping the government) or foreign assets (helping the economy by weakening the yen).