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"Price Stability Target" of 2 Percent and "Quantitative and Qualitative Monetary Easing"

"Price Stability Target" of 2 Percent

The Bank of Japan Act states that the Bank's monetary policy should be "aimed at achieving price stability, thereby contributing to the sound development of the national economy."

Price stability is important because it provides the foundation for the nation's economic activity. In a market economy, individuals and firms make decisions on whether to consume or invest, based on the prices of goods and services. When prices fluctuate, individuals and firms find it hard to make appropriate consumption and investment decisions, and this can hinder the efficient allocation of resources in the economy. Unstable prices can also distort income distribution.

On this basis, the Bank set the "price stability target" at 2 percent in terms of the year-on-year rate of change in the consumer price index (CPI) in January 2013, and has made a commitment to achieving this target at the earliest possible time.

For details, please see The "Price Stability Target" under the Framework for the Conduct of Monetary Policy [PDF 18KB] (released on January 22, 2013). Also, the Bank released the statement titled "Joint Statement of the Government and the Bank of Japan on Overcoming Deflation and Achieving Sustainable Economic Growth" [PDF 14KB] with the government in January 2013.

"Quantitative and Qualitative Monetary Easing (QQE)"

At the Monetary Policy Meeting held on October 31, 2014, the Bank decided the following measures: accelerating the pace of increase in the monetary base; and increasing asset purchases and extending the average remaining maturity of Japanese government bond (JGB) purchases. For details, please refer to the released statement: Expansion of the Quantitative and Qualitative Monetary Easing [PDF 65KB].

The following explains the decision made on the introduction of QQE on April 4, 2013.

The Bank introduced QQE in April 2013 to achieve the price stability target of 2 percent in terms of the year-on-year rate of change in the CPI at the earliest possible time, with a time horizon of about two years. Under the QQE, the Bank continues to pursue a new phase of monetary easing both in terms of quantity and quality. It will double the monetary base and the amounts outstanding of JGBs as well as exchange-traded funds (ETFs) in two years, and more than double the average remaining maturity of JGB purchases. The details are the following.

a) The adoption of the "monetary base control"

With a view to pursuing quantitative monetary easing, the main operating target for money market operations was changed from the uncollateralized overnight call rate to the monetary base. Specifically, the guideline for money market operations is set as follows:

The Bank of Japan will conduct money market operations so that the monetary base will increase at an annual pace of about 60-70 trillion yen.

b) An increase in JGB purchases and their maturity extension

With a view to encouraging a further decline in interest rates across the yield curve, the Bank will purchase JGBs so that their amount outstanding will increase at an annual pace of about 50 trillion yen. In addition, JGBs with all maturities including 40-year bonds will be made eligible for purchase, and the average remaining maturity of the Bank's JGB purchases will be extended from slightly less than three years to about seven years -- equivalent to the average maturity of the amount outstanding of JGBs issued.

c) An increase in ETF and J-REIT purchases

With a view to lowering risk premia of asset prices, the Bank will purchase ETFs and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at an annual pace of 1 trillion yen and 30 billion yen respectively.

d) The continuation of the QQE

The Bank will continue with the QQE, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. It will examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate.

(Reference) Monetary Base Target and the Bank's Balance Sheet Projection

(Reference) Monetary Base Target and the Bank's Balance Sheet Projection

For details, please see Introduction of the "Quantitative and Qualitative Monetary Easing" [PDF 154KB] (released on April 4, 2013).

For details on the current conduct of the Bank's monetary policy, please see Monetary Policy. For speeches and statements by Governor Kuroda, please see Speeches by speaker. For speeches and statements by other Policy Board members, please see Speeches and Statements.

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