The Bank of Japan has announced a raft of policy tweaks in measures it hopes will help Japan return to inflation.
While keeping interest rates unchanged at minus 0.1 per cent and its quantitative easing programme steady at ¥80 trillion (£601bn) per year, the central bank introduced a new target rate for long-term government bonds and committed to keep its money-printing programme running until inflation was above two per cent.
The BoJ said its bond-buying activity would focus on keeping borrowing costs for the government, through the yield on its benchmark 10-year bonds, at zero. Before the meeting, the yield on such bonds was minus 0.07 per cent, though they rose to minus 0.03 per cent on the announcement.
One function of quantitative easing is to reduce borrowing costs across the spectrum. Although central banks rarely give themselves an explicit target in terms of yields, it has been known: the US Federal Reserve, for instance, adopted such a policy in 1942 to cap the cost of long-term borrowing for the US government.
The BoJ branded the programme "quantitative and qualitative monetary easing with yield curve control."
The announcements came after a summer review of the bank's monetary policy framework as it seeks to address fears the BoJ could be running out of options to stoke inflation in the world's third largest economy.
The commitment to keep quantitative easing in place until inflation goes above the BoJ's official two per cent target caused the yen to weaken. After a few minutes of assessing the state of play, traders sold the yen, sending it to ¥102.57 against the dollar from ¥101.47.
BOJ calls for overshooting inflation target. Considering it can't even get near the target, this is truly aspirational.
— Alex Frangos (@alexfrangos) September 21, 2016
The Nikkei 225 went in the other direction, jumping 1.6 per cent to 16,761.
Inflation is currently running at minus 0.4 per cent in Japan, so the climb back to two per cent is still some way off. For only two periods since the beginning of the century – between 2008 and 2009 and again in 2014 – has inflation been above two per cent in Japan.
Divya Devesh, Asia strategist at Standard Chartered said the announcements meant the Bank would "continue easing for longer than previously expected", while Credit Suisse's banking analysts Takashi Miura said the result was good news for Japanese lenders as it seemed to indicate the BoJ was unwilling to go deeper into negative interest rate territory.
European bank shares have also climbed on the news. Simon Ward, chief economist at Henderson, said: "Markets have reacted with relief that the BoJ rejected the option of cutting the policy rate deeper into negative territory, a move that would have raised further doubts about financial system health."