TOKYO (Dow Jones) –Japan’s central bank took an unexpected step Wednesday, launching a 10-year interest rate target to step up its fight against deflation, following an internal review of existing measures that failed to achieve 2% inflation in a promised two-year time frame.

The Bank of Japan said it would start targeting 10-year interest rates, committing to keep them around zero as part of a new policy framework aimed at stoking inflation.
The BOJ also said it would continue quantitative easing until inflation “exceeds” 2%, effectively strengthening its commitment to continue aggressive easing.

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At the latest policy meeting, the BOJ left its deposit rate unchanged at minus 0.1%. The bank imposed the charge on certain yen deposits held by commercial banks in February, partly to encourage more lending. But the measure has delivered only limited results and has raised worries that murky profit prospects might cause banks to reduce loans instead.

The BOJ said it could cut the rate further as a measure to step up its easing action. Among other measures it said it may take in the future were further expansions of the monetary base.
The board kept unchanged its target of buying Y80 trillion of Japanese government bonds per year.
The decision Wednesday comes after an assessment lasting several weeks of the measures the BOJ has used so far to generate inflation and support the economy.

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