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As reported by Reuters, the Bank of Japan (BoJ) has undergone a monetary policy strategy that has proven incredibly unpopular with the nation’s banking institutions by forcing down yields.

Key highlights

The BoJ has been pursuing record-setting quantitative easing for the past five years. buying large volumes of Japanese government bonds, keeping short-term yields at -0.1%.

The purpose is to meet the bank’s 2% inflation target, ostensibly by encouraging people to spend money, discouraging savings by pushing down yields and interest rates.

The BoJ’s purchases are so large they have crowded out investment banks from their own bond market, driving down commission earnings on bond trading.

The BoJ also adopted a negative interest rate policy on their own reserves, charging banks -0.1%, cutting banks’ profit margins and making it more difficult for banks to lend money.

Negative rates on yields have cost Japanese banks approximately ¥96 billion since early 2016 on reserve interest paid, not including losses from declines in lending rates.

Earnings from bond trading  remains non-existent, to the point that the BoJ said they would double the 10-year target yield twice, once to 0.1% and again to 0.2%, but industry leaders say the current rates are simply too unprofitable to warrant investors trading in Japanese bonds, and the Japanese central bank has found itself being the only player in its own government bond market.

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