Improvements in the Way of Liquidity Provision and Reduction in the Official Discount Rate

February 9, 2001
Bank of Japan

1. At the Monetary Policy Meeting held today, the Bank of Japan has decided both to take measures to improve the way in which liquidity is provided to financial markets and to reduce the official discount rate by 0.15 percentage points to 0.35 percent.
   ·Improvements in the way of liquidity provision
   1. a. Introduction of a standby lending facility at the official discount rate
      In the current framework of monetary policy, the Bank provides the market with liquidity by the monetary operations that the Bank initiates.In addition to these, the Bank will introduce a standby lending facility ('Lombard-type' lending facility) through which the Bank extends loans at the requests of counterparties with the conditions pre-specified by the Bank.The Bank will prepare necessary arrangements so that the facility be put in place in March 2001.
   2. b. Increase in outright operations of short-term government securities
      With a view to providing short-term funds without putting repayment pressure on the market, the Bank will make active use of outright operations of short-term government securities.
   3. c. Preparation for the introduction of Bill Purchasing Operations at all business offices
      In order to facilitate stable provision of short-term funds with relatively longer maturities to a wider range of counterparties including local financial institutions, the Bank will expedite its preparation for the Bill Purchasing Operations at all of its business offices, the introduction of which was announced earlier.To initiate the operations by July 2001, the Bank will begin, in March, the procedure for selecting counterparties of the operations.
   ·Reduction in the official discount rate
   The official discount rate be reduced by 0.15 percentage points to 0.35 percent, effective on February 13, 2001, with a view to enhancing the effectiveness of the newly created lending facility described above in stabilizing short-term interest rates.
2. In light of recent developments in domestic and overseas economies as well as financial and capital markets, the Bank has decided upon these policy measures with a view to both enhancing flexibility of monetary operations and facilitating stable provision of funds widely in the market, thereby strengthening the effects that monetary ease has for supporting economic recovery.The Bank also reaffirms its commitment to providing ample funds through its daily monetary operations as the fiscal-year-end draws nearer.
3. With these policy measures, the Bank is determined to ensure both smooth functioning and stability of financial markets, thereby continuing to support economic recovery.

Outline of the ' Lombard-Type ' Lending Facility