Recent Conduct of Monetary Policy toward a Sustainable Growth Path with Price Stability
- Outline
- Pursuing Powerful Monetary Easing
- Providing Support to Strengthen the Foundations for Economic Growth
- Ensuring Financial Market Stability
- (Related Material) Statistics
Outline
The Bank of Japan conducts monetary policy based on the principle that the policy shall be aimed at "achieving price stability, thereby contributing to the sound development of the national economy." The relevant notion of price stability here must be one which is sustainable in the medium to long term.
In February 2012, the Bank introduced "the price stability goal in the medium to long term" as part of its efforts to further clarify the determination to overcome deflation and achieve sustainable growth with price stability (The Price Stability Goal in the Medium to Long Term). "The price stability goal in the medium to long term" is the inflation rate judged by the Bank to be consistent with price stability sustainable over the medium to long term. The Bank judges "the price stability goal in the medium to long term" to be in "a positive range of 2 percent or lower in terms of the year-on-year rate of change in the CPI;" more specifically, it has set "a goal of 1 percent for the time being."
Japan's economy currently confronts the long-term structural challenge of declining trend growth rates amid rapid population aging. In order for Japan's economy to overcome deflation and return to a sustainable growth path with price stability, both efforts to strengthen growth potential and support from the financial side are necessary.
Based on the above recognition, the Bank has been pursuing powerful monetary easing and providing support to strengthen the foundations for economic growth. It has also been doing its utmost to ensure financial market stability.
- Pursuing Powerful Monetary Easing
- Providing Support to Strengthen the Foundations for Economic Growth
- Ensuring Financial Market Stability
Since immediately after the Great East Japan Earthquake in March 2011, the Bank has been taking swift measures, including ample liquidity provision and further enhancement of monetary easing, with a focus on three major aspects: maintaining the functioning of financial and settlement systems, ensuring the stability of financial markets, and supporting economic activity. In addition to such measures, the Bank has conducted the Funds-Supplying Operation to Support Financial Institutions in Disaster Areas in order to provide financial support for these institutions' responses to the demand for funds for restoration and rebuilding. The Bank has also broadened the range of eligible collateral for money market operations with a view to ensuring that financial institutions in the disaster areas have sufficient financing capacity. For more details, please see Releases Related to the Great East Japan Earthquake.
1. Pursuing Powerful Monetary Easing
The Bank has been pursuing powerful monetary easing by implementing a comprehensive monetary easing policy that is comprised of three measures:
(1) Conduct of a virtually zero interest rate policy
The Bank adopts a virtually zero interest rate policy by maintaining the target for the uncollateralized overnight call rate at "around 0 to 0.1 percent."
(2) Purchases of financial assets through the Asset Purchase Program
The Bank established the Asset Purchase Program with a total size of about 35 trillion yen, which aims at further enhancing powerful monetary easing by encouraging a decline in longer-term market interest rates and a reduction in various risk premiums through the purchase of various types of financial assets. The size of the Program has been repeatedly expanded thereafter (currently about 70 trillion yen).
(3) Clarification of the policy time horizon
For the time being, the Bank will aim to achieve the goal of 1 percent inflation in terms of the year-on-year rate of increase in the consumer price index (CPI) through the pursuit of powerful monetary easing, by conducting its virtually zero interest rate policy and by implementing the Asset Purchase Program mainly through the purchase of financial assets.
2. Providing Support to Strengthen the Foundations for Economic Growth
Through "the fund-provisioning measure to support strengthening the foundations for economic growth," the Bank provides long-term (maximum duration of four years) funds at low rates (currently 0.1 percent per annum) to financial institutions carrying out lending or investment in support of strengthening the foundations for Japan's economic growth. In addition to the basic fund-provisioning arrangement in the measure, the Bank has established special rules for a new U.S. dollar lending arrangement, those for ABL (asset-based lending), and those for small-lot investments and loans as part of its continued efforts as the central bank to contribute to strengthening the growth potential of Japan's economy.
3. Ensuring Financial Market Stability
The Bank has been making its utmost efforts to ensure financial market stability by utilizing various funds-supplying operations in order to provide ample yen funds. In terms of foreign currencies, the Bank has conducted U.S. dollar funds-supplying operations and has established bilateral liquidity swap arrangements among five central banks that would enable the provision of liquidity in non-domestic currencies other than the U.S. dollar, should the need arise.
After fall 2008, when the turmoil in global financial markets intensified, the Bank implemented a wide range of policy measures on both the monetary policy and financial system policy fronts. For more information, please see The Bank of Japan's Policy Measures during the Financial Crisis.
1. Pursuing Powerful Monetary Easing
| Date | Releases |
|---|---|
| Dec. 1, 2009 | Enhancement of Easy Monetary Conditions [PDF 72KB] (Introduction of the fixed-rate funds-supplying operation against pooled collateral [fixed-rate operation]) |
| Mar. 17, 2010 | Expansion of the Measure to Encourage a Decline in Longer-Term Interest Rates [PDF 41KB] (Expansion of the fixed-rate operation: substantial increase in the total amount of loans to be provided through the operation) |
| Aug. 30, 2010 | Enhancement of Easy Monetary Conditions [PDF 19KB] (Expansion of the fixed-rate operation: the introduction of a 6-month term in the operation and a substantial increase in the amount of funds to be provided through it) |
| Oct. 5, 2010 | Comprehensive Monetary Easing [PDF 47KB] (Change in the Bank's target for the uncollateralized overnight call rate, clarification of the policy time horizon based on the understanding of medium- to long-term price stability, and establishment of the Asset Purchase Program) |
| Mar. 14, 2011 | Enhancement of Monetary Easing [PDF 22KB] (Increase in the size of the Asset Purchase Program: increase of 5 trillion yen in purchases of mainly risk assets) |
| Aug. 4, 2011 | Enhancement of Monetary Easing [PDF 30KB] (Increase in the size of the Asset Purchase Program: increase of 10 trillion yen) |
| Oct. 27, 2011 | Enhancement of Monetary Easing [PDF 30KB] (Increase in the size of the Asset Purchase Program: increase of 5 trillion yen) |
| Feb. 14, 2012 | Enhancement of Monetary Easing [PDF 51KB] (Introduction of "the price stability goal in the medium to long term," clarification of the Bank's determination to pursue monetary easing [the Bank's commitment aimed at generating policy duration effects], and increase in the size of the Asset Purchase Program: increase of 10 trillion yen) |
| Apr. 27, 2012 | Enhancement of Monetary Easing [PDF 67KB] (Increase in the size of Asset Purchase Program: increase of 5 trillion yen) |
Utilization of Various Funds-Supplying Operations
In the pursuit of powerful monetary easing, the Bank has been utilizing various funds-supplying operations including the Asset Purchase Program.
| Amount outstanding (as of the end of April 2012) | Notes | ||
| Amount outstanding for individual funds-supplying operations (excluding amounts purchased through the Asset Purchase Program) | |||
| Outright purchases of JGBs | 65.3 trillion yen | Purchases 21.6 trillion yen per year: Mar. 18, 2009 [PDF 95KB] | |
| Outright purchases of treasury discount bills | 0.3 trillion yen (13.8 trillion yen) |
The figure in parentheses is the amount outstanding including the amount of underwriting. | |
| Purchases of JGSs with repurchase agreements | 0 trillion yen | -- | |
| Funds-supplying operations against pooled collateral (a multiple-price competitive auction) | 0.4 trillion yen | -- | |
| Purchases of CP with repurchase agreements | 0 trillion yen | -- | |
| Funds-supplying operation to support financial institutions in disaster areas | 0.5 trillion yen | -- | |
| Fund-provisioning measure to support strengthening the foundations for economic growth | 3.1 trillion yen | -- | |
| Asset Purchase Program | 50.3 trillion yen | For the amount outstanding for individual asset categories, please see Asset Purchase Program. | |
Asset Purchase Program
The Bank, as part of comprehensive monetary easing, established a program on its balance sheet -- the Asset Purchase Program -- to purchase various financial assets and conduct the fixed-rate funds-supplying operation against pooled collateral.
Operation of the Asset Purchase Program
| Maximum amount outstanding |
Amount outstanding (as of the end of April 2012) |
||
|---|---|---|---|
| Asset purchases | 40 trillion | 15,921.5 billion | |
|
|
JGBs | 29 trillion | 7,826.9 billion |
| T-Bills | 4.5 trillion | 3,455.1 billion | |
| CP | 2.1 trillion | 1,576.7 billion | |
| Corporate bonds | 2.9 trillion | 2,043.8 billion | |
| Exchange-traded funds (ETFs) | 1.6 trillion | 942.9 billion | |
| Japan real estate investment trusts (J-REITs) | 0.12 trillion | 76.1 billion | |
| Fixed-rate funds-supplying operation against pooled collateral | 30 trillion | 34.3 trillion | |
| Total | 70 trillion | 50.3 trillion | |
Note: Figures for maximum amount outstanding are approximate amounts.
Reference
2. Providing Support to Strengthen the Foundations for Economic Growth
| Releases | |
| Fund-provisioning measure to support strengthening the foundations for economic growth | Announcement: Apr. 30, 2010 [PDF 18KB]
Preliminary framework: May 21, 2010 [PDF 23KB] Introduction: June 15, 2010 [PDF 51KB] |
|---|---|
| Special rules for equity investments and ABL to enhance the fund-provisioning measure to support strengthening the foundations for economic growth | Introduction: June 14, 2011 [PDF 16KB] |
| Special rules for small-lot investments and loans to enhance the fund-provisioning measure to support strengthening the foundations for economic growth | Introduction: Mar. 13, 2012 [PDF 38KB] |
| Special rules for the U.S. dollar lending arrangement to enhance the fund-provisioning measure to support strengthening the foundations for economic growth | Preliminary framework: Mar. 13, 2012 [PDF 69KB] Introduction: Apr. 10, 2012 [PDF 88KB] |
Loan Disbursement under the Fund-Provisioning Measure to Support Strengthening the Foundations for Economic Growth
| Amount of loans | Number of borrowers | |
|---|---|---|
| First disbursement (Sep. 6, 2010) Sep. 1, 2010 [PDF 50KB] |
462.5 billion yen | 47 institutions |
| Second disbursement (Dec. 7, 2010) Nov. 30, 2010 [PDF 157KB] |
998.3 billion yen | 106 institutions |
| Third disbursement (Mar. 7, 2011) Feb. 28, 2011 [PDF 145KB] | 722.1 billion yen | 122 institutions |
| Fourth disbursement (June 8, 2011) May 31, 2011 [PDF 146KB] |
829.6 billion yen | 126 institutions |
| Fifth disbursement (Sep. 6, 2011) Aug. 31, 2011 [PDF 171KB] |
139.5 billion yen | 99 institutions |
| Sixth disbursement (Dec. 7, 2011) Nov. 30, 2011 [PDF 177KB] |
162.9 billion yen | 85 institutions |
| Seventh disbursement (Mar. 7, 2012) Feb. 29, 2012 [PDF 175KB] |
146.9 billion yen | 80 institutions |
Reference
- Bank of Japan Review Series : Fund-Provisioning Measure to Support Strengthening the Foundations for Economic Growth (2010-E-5, September 1, 2010)
- Fund-provisioning measure to support strengthening the foundations for economic growth
3. Ensuring Financial Market Stability
Main Measures Implemented to Ensure Financial Market Stability
The Bank, to fully ensure financial market stability, has been implementing many measures including the utilization of various funds-supplying operations.
For the summaries of swap agreements with other central banks to conduct foreign currency funds-supplying operations and the summaries of swap agreements with other central banks to supply yen, please see the "Swap Agreements with the Federal Reserve Bank of New York etc."
(Related Material) Statistics
Balance Sheet and Amount Outstanding of Collateral Accepted
| Statistics | Contents |
| Bank of Japan Accounts (Every Ten Days) | Developments in the balance sheet every ten days |
| Bank of Japan Accounts | The amount outstanding of items on the balance sheet as of the end of each month |
| Collateral Accepted by the Bank of Japan | The amount outstanding of collateral accepted as of the end of each month |
Size and Amount Outstanding of Various Operations
| Statistics | Contents |
| Money Market Operations Conducted by the Bank of Japan (Daily) | Day-to-day operations and their results |
| Money Market Operations Conducted by the Bank of Japan (Monthly) | A list of operations by month |
| Monetary Base and the Bank of Japan's Transactions | Details of supply of funds and changes in the monetary base by month |
| Sources of Changes in Current Account Balances at the Bank of Japan and Market Operations (Final Figures) | Changes in current account balances and in the size of market operations by month |
