The Bank of Japan shocked markets on Thursday with a radical overhaul of its policymaking, adopting a new balance sheet target and pledging to double its government bond holdings in two years as it seeks to end nearly two decades of deflation. At Governor Haruhiko Kuroda's first policy-setting meeting, the central bank shifted its policy target to the monetary base -- the total size of cash and bank deposits -- from the overnight call rate, which is at zero to 0.1 percent. The decision marks a return to the BOJ's five-year quantitative easing policy that ended in 2006, when it flooded markets with cash targeting excess reserves that financial institutions parked with the central bank. The scope of the changes Kuroda pushed through, and the fact he secured unanimous board support for them, drove the yen down sharply and knocked the 10-year bond yield to a record low. The Nikkei stock index unwound losses of more than 2 percent to end up 2.2 percent, just shy of a 4-1/2 year closing high hit last month. "I can say that the BOJ came up with a perfect answer in response to market expectations," said Junko Nishioka, chief Japan economist at RBS Securities. "Kuroda made good on his promise of boosting monetary easing in terms of both volume and types of assets that the bank purchases."
