Kirk Spitzer

USA TODAY

TOKYO — The Bank of Japan kept its negative interest rate policy unchanged at minus 0.1% on Wednesday in the first of two important monetary policy decisions on opposite sides of the globe.

The BOJ also announced a new policy framework that will set the country's 10-year interest rate as a new target instead of increasing its already massive asset purchase program to achieve its goal of 2% annual inflation.

After its two-day meeting, the bank said it would modify its bond-buying program to keep yields for benchmark 10-year Japanese government bonds at about zero percent, roughly the current level.

The Federal Reserve is expected to announce whether to raise U.S. interest rates later today. Economists expect the Fed to leave rates unchanged when it ends its two-day meeting.

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Tokyo stocks rallied after the BOJ announcement, with the benchmark Nikkei 225 index closing up 315.47 points, or 1.91%, at 16,807.62. The broader Topix index closed 35.70 points higher, or 2.71%, at 1,352.67.

The dollar rose more than one yen, to the mid-102 yen per dollar range.

The BOJ's new policy will include two components: "yield curve control" under which the bank will seek to control short-term and long-term interest rates; and an "inflation-overshooting commitment," in which the bank will expand the monetary base until year-on-year consumer inflation exceeds the price stability target of 2%.

The new policy follows a "comprehensive assessment" of the central bank's monetary easing strategy aimed at spurring inflation and ending two decades of largely stagnant economic growth.

The BOJ set a target in January 2013 of achieving at least 2% annual inflation within two years to help kick-start Japan’s economy — the world's third largest. It has averaged less than 1% annual growth since the 1990s.

Inflation has averaged only about half the target rate.

BOJ Governor Haruhiko Kuroda said in a speech in Tokyo earlier this month that the assessment was intended to analyze what has prevented the central bank from achieving the 2% inflation goal and whether measures should be adjusted.

The BOJ took world markets by surprise in January of this year by announcing it would charge commercial banks a 0.1% fee on a portion of their reserves deposited with the central bank. Despite the excess cash created by the BOJ’s bond-buying program, there has been little demand for new lending and profits at commercial banks have suffered.

The results of the BOJ’s efforts have been mixed. Japan’s gross domestic product grew by 2% in the first quarter of this year, but slowed to just 0.2% for the quarter ending in June.

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