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

Bank of Japan is pictured in Tokyo. (Mainichi, File)

TOKYO (Kyodo) -- The Bank of Japan decided Tuesday to allow long-term interest rates to rise above the current ceiling to increase the sustainability of its massive stimulus program, while stressing it will continue accommodative monetary policy in order to lift stubbornly low inflation.

The BOJ's Policy Board also decided at a two-day meeting to apply its negative interest rate to a smaller amount of financial institutions' funds, and change the composition of its purchases of exchange-traded funds.

Governor Haruhiko Kuroda is scheduled to meet the press later in the day to explain the decision.

The first policy change in nearly two years came as the central bank expects a prolonged fight to achieve its 2 percent inflation target, with price gains remaining weak despite robust corporate profits and a tightening labor market.

In a report on the economic outlook, the BOJ cut inflation forecasts for the next three years, projecting price gains of 1.1 percent in fiscal 2018, 1.5 percent in fiscal 2019, and 1.6 percent in fiscal 2020.

The BOJ maintained its target level for the yield on the 10-year government bond, the benchmark for long-term rates, at around zero percent. But it added that the yield "may move upward and downward to some extent," suggesting it will allow it to rise higher than its previous de facto ceiling of 0.1 percent.

The BOJ also retained a short-term interest rate of minus 0.1 percent for some funds that financial institutions keep parked at the central bank, but said that it will reduce the amount subject to the negative rate from the current 10 trillion yen ($90 billion) on average.

It meanwhile introduced forward guidance, promising to keep extremely low levels of interest rates "for an extended period of time."

A loose pledge to increase government bond holdings by about 80 trillion yen annually remained, though it added that it will conduct purchases in a "flexible manner."

The decision was reached by a 7-2 vote, with the biggest advocates of reflationary policy, Yutaka Harada and Goshi Kataoka, dissenting.

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