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Bank of Japan criticized for behaving like ‘control freaks’

Bank of Japan Governor Haruhiko Kuroda delivers a speech during a general meeting for members of the Japan Chamber of Commerce and Industry in Tokyo.
Kazuhiro Nogi | AFP | Getty Images

Changes to the Bank of Japan's monetary stimulus program are being criticized for "killing volatility" and providing evidence that the central bank's members are behaving like "control freaks".

The Bank of Japan (BOJ) announced a policy overhaul Wednesday which abandons its monetary base target, emphasizes bond yield curve control and scraps its asset buying range. The BOJ chose to leaves rates unchanged.

Vincent Chaigneau, global head of rates and FX strategy at Societe Generale, told CNBC Wednesday that he was looking for a big market action day, but was left disappointed.

"The target of QE (quantitative easing) was to bring long yields to the downside and boost asset prices. Now they say there is too much of a good thing and we want to keep them around zero percent," he said.

"They are turning in to control freaks and I'm not sure they are going to reassure anyone that they have ammunition."

U.K fund manager at Miton, Eric Moore, told CNBC Wednesday the "Japan experiment" with QE looks to be failing but the central bank is refusing to bend from core beliefs.

"It doesn't appear to really work, but they are saying we are going to do more. And we are going to be even more surgical … So they still believe in their power to engender growth through monetary policy," he said.

Bank of Japan poll

Following the announcement stocks on the Nikkei 225 and Topix rose sharply, while the weakened and the yield on the 10-year Japanese sovereign briefly turned positive.

BOJ Governor Haruhiko Kuroda's focus on the yield curve is seen as especially positive for banks, which have seen margins hurt by low and negative rates.

Later on Wednesday, Kuroda addressed a press conference in which he reaffirmed a commitment to targeting 2 percent inflation, as well as promising to carry out further stimulus as necessary.

In an email to CNBC Wednesday, Daryl Liew, senior portfolio manager at Reyl Singapore, said he doesn't believe monetary policy can drag Japan into the higher inflation environment it craves.

"Easy monetary policies have proven ineffective in the current environment, and Japan probably requires further fiscal stimulus and for the third arrow of 'Abenomics' to kick in," he said.

Joining the chorus of disapproval was Marc Ostwald, analyst at ADM Investor Services, who said in a note that the BOJ was in danger of overcomplicating its position.

"The BOJ policy can now be described as quantitative and qualitative easing with yield curve control and Inflation target overshooting, which is so verbose as to be nigh on meaningless," he said