Japan's central bank unveiled an overhaul of monetary policy on Wednesday, pledging to double down on its attempts to stoke inflation and kickstart the torpid economy.

After a hotly anticipated meeting, the Bank of Japan said it would set a target for 10-year government bond yields, aiming to push them higher, while holding off a further cut in interest rates into negative territory.

It also loosened its annual asset-buying target -- a key feature of its more than three-year-old policy -- saying it could instead fluctuate to give it flexibility while focusing on keeping bond yields steady.

The bank also pledged continue monetary easing as needed until it hits and stabilises inflation at its 2.0 percent target.

"The fact that it pledged to keep the current policy until it achieves its 2.0 percent inflation target can be interpreted as expansion of easing policy," said Yasuhide Yajima, chief economist at NLI Research Institute.

The announcement -- hours before the US Federal Reserve wraps up its latest meeting -- appeared aimed at critics of the BoJ, including banks and insurance companies that have been hit by its negative rate policy.

Negative rates are meant to encourage lending to people and businesses by effectively charging banks to keep excess reserves in the BoJ's vaults. But commercial lenders have complained they are eating into their financial results.

The central bank said it would lift controls on maturities of the bonds it buys under the huge asset-purchase plan -- there are concerns that the bank is running out of government bonds that it can buy.

Bank stocks rallied in response to the BoJ's announcement, with Tokyo's Nikkei 225 index surging nearly two percent by the close.

The yen plunged -- good news for exporters -- after the announcement. Easing measures tend to knock the yen as it suggests more of the currency will be floating around the financial system.

The dollar jumped to 102.64 yen from around 101.66 yen earlier Wednesday.

- 'Rather lenient' -
Wednesday's adjustments came as the bank released an unprecedented report card on its own policies, which are a cornerstone of Prime Minister Shinzo Abe's growth drive, dubbed Abenomics.

In its review, the bank blamed its failure to hit its inflation target on a drop in oil prices, a sales tax hike at home in 2014 that dented spending, and trouble in overseas economies.

Still, the bank said its policies have "transformed peoples' perception of inflation and ... led to a rise in inflation expectations".

Some were sceptical of the BoJ rating itself, as doubts grow about the likelihood of Abenomics reviving the economy.

"A review done by the people concerned tends to be rather lenient and may not be objective," Credit Suisse analyst Hiromichi Shirakawa said before the report.

Since its launch in early 2013, Abenomics -- a mix of big government spending, monetary easing and promises to cut red tape -- has largely failed to deliver.

Japan's economy contracted in the last three months of 2015, before bouncing back in January-March with a 0.5 percent rise on-quarter and then a 0.2 percent expansion in April-June.

Tokyo recently announced a 28 trillion yen package aimed at kickstarting growth, after Britain's June vote to quit the European Union sent financial markets into a tailspin and sparked a rally in the yen, which is hurting corporate profits.

Before markets opened Wednesday, Japan published weak trade figures that underlined the struggles facing Abe and BoJ chief Haruhiko Kuroda.

"I think the positive reaction (to the BoJ decision) will be short-lived," said Daisuke Uno, chief market strategist at Sumitomo Mitsui Bank.

"The report is vague and markets will soon start questioning  if the policy will really raise inflation and interest rates."

Source: AFP