BoJ: Strengthening the framework for continuous powerful monetary easing - Rabobank

"In July 2018 the BoJ introduced forward guidance for its policy rates and also took several actions to enhance the sustainability of QQE with YCC," Rabobank analysts noted in a recently published article in which they reviewed the BoJ'e monetary policy.

Key quotes

"The BoJ added to its monetary policy statement that it “intends to maintain the current extremely low levels of short and long-term interest rates for an extended period of time, taking into 
account uncertainties regarding economic activity and prices including the effects of the consumption tax hike scheduled to take place in October 2019”."

"In relation to the annual JPY 80trn target for the increase in JGBs held by the BoJ, the central bank added that it will “conduct purchases in a flexible manner”. The Bank also slightly altered its language with regards to when it would elect to intervene in the JGB market (i.e. with a fixed-rate operations), replacing a ‘spike’ in interest rates with a ‘rapid increase’."

"The BoJ increased the Benchmark ratio (that is used to calculate the Macro add-on balance) from 30.5% to 33.0% (this will apply from the August 2018 reserve maintenance period). This should
result in the Policy-rate balance falling from JPY 10trn to JPY 5trn (note that this assumes arbitrage transactions were taking place in full among financial institutions)."

"The BoJ added that “with a view to lowering the risk premia of asset prices in an appropriate manner, the Bank may increase or decrease the amount of purchases depending on market conditions”.