The BOJ maintained ultra-low interest rates on Wednesday, including a 0.5% yield cap, but crafted a new policy tool to defend the ceiling and keep yields across the curve from rising too much - without having to ramp up its bond purchases.
Specifically, the BOJ amended rules for an existing market operation tool, so it can pump funds extending up to 10 years in variable rates to financial institutions against collateral.
Unlike its bond-buying operation, the fund-supply tool allows the central bank to push down borrowing costs with a wall of money - without having to worry about drying up bond market liquidity with its massive purchases, analysts say.
"With this new tool, the BOJ may have prepared for when it ends YCC and begins normalising monetary policy," Inoue told Reuters on Thursday.
"If the BOJ sees the need to set a new policy rate for shorter-maturity yields after ditching the 10-year yield target, this fund-supply operation could come in handy," he said.