Long stay on fringe of monetary policy a double-edged sword for Japan

BANK of Japan (BOJ) governor Haruhiko Kuroda may not like to admit it, but Japan's central bank is already operating at its limits, and every additional day spent on the edge will create more problems.

Unfortunately for Mr Kuroda, Japanese monetary policy must stick to this position until the country's lawmakers start to carry more of the burden involved in reviving Japan's moribund economy.

The BOJ on Wednesday refrained from pushing interest rates deeper into negative territory, which boosted the stock prices of Japanese banks. However, the central bank made its already dovish monetary policy even more accommodative by extending its rate-setting mechanisms further out on the yield curve to achieve 10-year yields of close to zero for Japanese government bonds. It also committed to maintaining its current pace of buying 80 trillion yen (S$1.07 trillion) of assets annually, and to continue charging banks 0.1 per cent for keeping certain deposits with the BOJ instead of lending them out.