TOKYO (Reuters) – The Bank of Japan on Friday unveiled a plan to probe more effective ways to achieve its 2% inflation target, following in the foot steps of its U.S. and European counterparts as a renewed spike in infections threatened to derail a fragile recovery.

As widely expected, the central bank kept monetary policy steady and extended by six months a range of measures aimed at easing funding strains of companies hit by COVID-19.

“Given the economy and prices are projected to remain under downward pressure for a prolonged period due to the impact of COVID-19, the BOJ will conduct an assessment on further effective and sustainable monetary easing,” the central bank said in a statement on its policy decision.

The BOJ will announce the findings of the review, which it says will not lead to any changes to its yield curve control framework, in March.

“We will examine operations under yield curve control and our asset purchases,” BOJ Governor Haruhiko Kuroda told a news conference.

“Obviously, there will be no change to our commitment to achieve our 2% inflation target and our pledge to maintain ultra-loose policy until inflation stably exceeds 2%,” he said.

“We will also not tweak our negative rate policy.”

The surprise move underscores the growing concern among BOJ policymakers over the diminishing return and rising cost of prolonged easing such as the hit to bank profits from years of ultra-low rates, analysts say.

“Today’s surprise was the announcement of its plan to review its monetary easing. That would be in line with recent moves by European Central Bank and the Federal Reserve to examine the course of monetary policy,” said Yasunari Ueno, chief market economist at Mizuho Securities.

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“The BOJ must have thought it would be left behind in the global monetary policy trend if it did not follow suit.”

POLICY HEADACHE

At the two-day rate review ending on Friday, the BOJ kept intact its yield curve control (YCC) targets of -0.1% for short-term rates and 0% for 10-year bond yields.

With the pandemic still hurting the economy, the BOJ decided to extend its fund-aid programme, deployed in March through May to deal with the immediate hit from COVID-19, by six months.

The package includes increased purchases of corporate debt and a lending scheme to channel money via banks to small firms.

The central bank said it is ready to extend the deadline of the package further if needed to support the economy.

Japan’s economy rebounded in July-September from its worst postwar contraction in the second quarter, though the third wave of infections is dampening prospects for a strong revival.

The pandemic has added to headaches for major central banks including the ECB and Fed, which have conducted reviews on how to better battle a protracted low-growth, low-inflation environment with their dwindling policy ammunition.

Having conducted its own comprehensive review of its policy framework in 2016, the BOJ has argued there was no need to do another examination despite missing its 2% price goal for years.

Data released earlier in the day showed core consumer prices dropped at their fastest pace in a decade in November, stoking fears of a return to deflation and keeping policymakers under pressure to take stronger steps to prop up growth.

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