Tokyo stocks close lower as BoJ meets 30 July 2018

BOJ says rising female, senior workers keeping inflation low

The BOJ meeting would precede the U.S. Federal Reserve's two-day rate review through Wednesday, which is expected to reaffirm the outlook for further gradual rate rises. The open-ended plan pledged to keep interest rates at extremely low levels for an "extended period".

"The BOJ is now more engaged and prepared to fight a long-run battle against deflation or disinflation", said Shigeto Nagai, Head of Japan Economics at Oxford Economics.

Germany's 10-year government bond yield DE10YT=RR , the benchmark for the euro zone, rose more than 4 basis points to a six-week high of 0.46 percent.

The major exporters are mostly lower.

The Japanese yen is now slightly weaker against all major currencies except the Australian dollar.

On currency markets, the chance of a BoJ shift has sent the yen higher in the last week or so, leaving the dollar around 111.05 yen from a peak of 113.18 earlier in the month.

The S&P telecommunications services index .SPLRCL rose 1.95 percent and the S&P energy sector .SPNY jumped 0.84 percent as oil prices gained.

During the two-day meeting, the BOJ also chose to maintain its short-term interest rate at minus 0.1 percent, but said that it will reduce the amount of funds subject to the rate that financial institutions keep parked at the central bank.

The BOJ could also modify its annual objective of accumulating 80 trillion yen ($720 billion) of Japanese government bonds, as well as potentially lifting its target yield for 10-year JGBs.

Among them was a rise in female and senior part-time workers, who tend to join the job market in greater numbers than men for the same rate of wage increases and thus suppress overall wage gains, the BOJ said.

Meanwhile, concerns have been mounting over the negative side effects of the easing policies.

The central bank may instead tweak its guidance on the yield targets to signal it would allow rates to move more flexibly, the sources say.

Some observers saw Tuesday's developments as a precursor to policy normalization some time in the future. Japan's currency and bond yields had strengthened leading into the meeting on market speculation the BoJ would adjust its policies.

Speculation that policy tweaks were afoot increased as traders awaited the announcement, which finally came at 1:03pm in Tokyo yesterday - the latest since the yield-curve control programme was introduced in September 2016.

"It's irrational to argue that they're tightening when the inflation outlook is falling rather than rising", Mr Adachi said.

In a nod to those difficulties it revised down its inflation forecasts, saying it now expected inflation for fiscal 2018 of 1.1 percent, rising to just 1.5 percent in fiscal 2019 and 1.6 percent for fiscal 2020.

"The BOJ may be losing confidence over its ability to drive up inflation".

"The BOJ has now effectively been taken off the table as a potential driver of the yen".

With savings at lofty levels and lower taxes increasing take-home pay for some workers, consumer spending is likely to remain strong this year and allow the Fed to continue gradually raising interest rates.

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