Asian shares gain as Bank of Japan tweaks monetary policy

BANK OF JAPAN WATCH: Japan’s central bank announced it was shifting its monetary policy to enhance its control of short-term and long-term interest rates.

The meeting wrapped up just hours before the U.S. Federal Reserve’s latest policy decision was due.

World shares rose Wednesday after Japan’s central bank chose to keep short-term interest rates unchanged while adjusting its asset purchases to help push yields on long-term government bonds higher. The Bank of Japan8301 12.79 % learned that lesson after it cut rates to negative but the yen rose unexpectedly.

The Bank of Japan meets on Wednesday and could well go in the opposite direction by easing policy, though conflicting reports on what it might do have stoked much uncertainty.

Tokyo’s Nikkei 225 reversed its early losses, gaining 1.8 percent to 16,784.98. But it could also happen if investors believe that the BOJ will keep pushing down short rates for a very long time, meaning long-term bonds can carry lower yields as well.

Negative rates are meant to encourage lending to people and businesses by effectively charging banks to keep excess reserves in the BoJ’s vaults. The BOJ said it would continue to buy long-term government bonds at a pace so that ensures the its holdings increase by 80 trillion yen ($781 billion) per year, Reuters reported.

Analysts expect the BOJ to eventually slash its policy rate further.

With three years of massive money printing failing to push up inflation, the BOJ is expected to move away from the shock therapy of massive stimulus toward a more protracted battle against deflation, say sources familiar with its thinking.

The Japanese economy is struggling to overcome from its chronic stagnation.

In the United States, the Federal Reserve is expected to raise short-term US interest rates – but probably not before a meeting in December. It was widely expected to hike rates several more times this year, has held off as the US economy sputtered, hobbled by weak global growth and a strong dollar that makes American goods pricier in foreign markets.

On Tuesday, the Reserve Bank of Australia released its meeting minutes, which imply that the central bank is in a wait-and-see mode to measure the effect of the May and August rate cuts on the Australian economy, according to ANZ.

Meanwhile, European Central Bank chief Mario Draghi is asking for help from the governments of the 19 counties that use the euro currency.