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"Price Stability Target" of 2 Percent and "Quantitative and Qualitative Monetary Easing with Yield Curve Control"

"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 with Yield Curve Control"

At the Monetary Policy Meeting held on September 20 and 21, 2016, the Bank decided to introduce "Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control."

The following is the outline of "QQE with Yield Curve Control." For details, refer to New Framework for Strengthening Monetary Easing: "Quantitative and Qualitative Monetary Easing with Yield Curve Control" [PDF44KB] (released on September 21, 2016). In addition, as a background paper, "Comprehensive Assessment of the Monetary Easing (the Background)" [PDF814KB] was released on September 21, 2016.

For details of the analysis conducted in the Comprehensive Assessment: Developments in Economic Activity and Prices as well as Policy Effects since the Introduction of Quantitative and Qualitative Monetary Easing (QQE), please see Supplementary Paper Series for the "Comprehensive Assessment."

(1) Developments in Inflation Expectations over the Three Years since the Introduction of Quantitative and Qualitative Monetary Easing (QQE) [PDF 414KB] (released on October 14, 2016)

(2) Developments in the Natural Rate of Interest in Japan [PDF 369KB] (released on October 18, 2016)

(3) Policy Effects since the Introduction of Quantitative and Qualitative Monetary Easing (QQE) -- Assessment Based on the Bank of Japan's Large-scale Macroeconomic Model (Q-JEM)-- [PDF 327KB] (released on November 7, 2016)

(1) Yield Curve Control

a) Guideline for market operations

The guideline for market operations specifies a short-term policy interest rate and a target level of a long-term interest rate. The Bank decided to set the following guideline for market operations for the intermeeting period. The Bank will cut the interest rates further if judged necessary.

(i) The short-term policy interest rate: The Bank will apply a negative interest rate of minus 0.1 percent to the Policy-Rate Balances in current accounts held by financial institutions at the Bank.

(ii) The long-term interest rate: The Bank will purchase Japanese government bonds (JGBs) so that 10-year JGB yields will remain more or less at the current level (around zero percent). With regard to the amount of JGBs to be purchased, the Bank will conduct purchases more or less in line with the current pace -- an annual pace of increase in the amount outstanding of its JGB holdings at about 80 trillion yen -- aiming to achieve the target level of a long-term interest rate specified by the guideline. JGBs with a wide range of maturities will continue to be eligible for purchase, while the guideline for average remaining maturity of the Bank's JGB purchases will be abolished.

b) New tools of market operations for facilitating yield curve control

The Bank decided to introduce the following new tools of market operations so as to control the yield curve smoothly.

(i) Outright purchases of JGBs with yields designated by the Bank (fixed-rate purchase operations)

(ii) Fixed-rate funds-supplying operations for a period of up to 10 years (extending the longest maturity of the operation from 1 year at present)

(2) Guidelines for asset purchases

With regard to asset purchases except for JGB purchases, the Bank decided to set the following guidelines.

a) The Bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at annual paces of about 6 trillion yen and about 90 billion yen, respectively.

b) As for CP and corporate bonds, the Bank will maintain their amounts outstanding at about 2.2 trillion yen and about 3.2 trillion yen, respectively.

(3) Inflation-overshooting commitment

The Bank will continue with "QQE with Yield Curve Control," aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. The Bank will continue expanding the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds the price stability target of 2 percent and stays above the target in a stable manner. Meanwhile, the pace of increase in the monetary base may fluctuate in the short run under market operations which aim at controlling the yield curve.

The Bank will make policy adjustments as appropriate, taking account of developments in economic activity and prices as well as financial conditions, with a view to maintaining the momentum toward achieving the price stability target of 2 percent.

The Recent Conduct of the Bank's Monetary Policy

The Bank introduced QQE in April 2013; expanded it in October 2014; introduced supplementary measures in December 2015; introduced QQE with a Negative Interest Rate in January 2016; and enhanced monetary easing in July 2016. For details, see the following.

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

Expansion of the Quantitative and Qualitative Monetary Easing [PDF 65KB] (released on October 31, 2014)

Statement on Monetary Policy (Introduction of Supplementary Measures for Quantitative and Qualitative Monetary Easing) [PDF 32KB] (released on December 18, 2015)

Introduction of "Quantitative and Qualitative Monetary Easing with a Negative interest Rate" [PDF 30KB] (released on January 29, 2016)

Enhancement of Monetary Easing [PDF 67KB] (released on July 29, 2016)

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

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