Recent Conduct of Monetary Policy toward a Sustainable Growth Path with Price Stability
- The "Price Stability Target" and the Framework for the Conduct of Monetary Policy
- Pursuing Powerful Monetary Easing
- Providing Support for Financial Institutions' Efforts to Strengthen the Foundations for Economic Growth and Stimulating Bank Lending
- Ensuring Financial Market Stability
- (Related Material) Statistics
The "Price Stability Target" and the Framework for the Conduct of Monetary Policy
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."
"Price stability" is defined conceptually as "a state where various economic agents including households and firms may make decisions regarding such economic activities as consumption and investments without being concerned about the fluctuations in the general price level." Therefore, "price stability" must be the one on a sustainable basis.
In January 2013, the Bank decided to introduce the "price stability target" and restate the framework for the conduct of monetary policy ("The 'Price Stability Target' under the Framework for the Conduct of Monetary Policy"). This "price stability target" is the inflation rate that the Bank judges to be consistent with price stability on a sustainable basis. The Bank recognizes that the inflation rate consistent with price stability on a sustainable basis will rise as efforts by a wide range of entities toward strengthening competitiveness and growth potential of Japan's economy make progress. Based on this recognition, the Bank sets the "price stability target" at 2 percent in terms of the year-on-year rate of change in the consumer price index (CPI) -- a main price index.
Previously, the "price stability goal in the medium to long term" was in a positive range of 2 percent or lower in terms of the year-on-year rate of change in the CPI and the Bank set a goal at 1 percent for the time being. This time, replacing a "goal" with a "target" and setting that target at 2 percent in terms of the year-on-year rate of change in the CPI are based on the following recognition.
The Bank recognizes that the inflation rate consistent with price stability on a sustainable basis will rise as efforts by a wide range of entities toward strengthening competitiveness and growth potential of Japan's economy make progress. Today's expected rate of inflation has been shaped over the years. As the strengthening of growth potential makes progress going forward, the actual rate of inflation would gradually rise and accordingly the expected inflation rate of households and firms is likely to rise as well. Going forward, as prices are expected to rise moderately, it is judged appropriate to clearly indicate the target of 2 percent in order to anchor the sustainable rate of inflation.
Switching from a "goal" to a "target" reflects an increasing awareness regarding the importance of flexibility in the conduct of monetary policy in Japan. The effects of monetary policy permeating economic activity and thereafter prices require a considerable and variable time lag. The conduct of monetary policy has to be flexible by examining various risk factors, including those related to financial imbalances, in addition to the assessment of current developments and outlook for economic activity and prices, from the perspective of achieving sustainable growth with price stability. Such understanding has been widely shared around the globe; particularly, in the aftermath of the global financial crisis, major economies of the world have come to emphasize flexibility in the conduct of monetary policy -- by, for example, publicly articulating the importance of paying due attention to financial system stability. Over the last year, there has been an increasing awareness of such understanding in Japan as well. In such circumstances, it is judged transparent and appropriate to use the expression, "target," in order to explain the Bank's thinking on price stability.
In order for Japan's economy to overcome deflation as early as possible and return to a sustainable growth path with price stability, efforts by a wide range of entities to strengthen growth potential are crucial. The Bank will continue to thoroughly examine the progress toward strengthening growth potential and the ensuing developments in the expected inflation rate of households and firms. In the meantime, the Government has shown its intention to aggressively pursue steps for strengthening competitiveness and growth potential of Japan's economy and to steadily promote measures aimed at establishing a sustainable fiscal structure.
The Bank will continue to conduct monetary policy, based on its assessment of economic activity and prices from two perspectives, in the context of the "price stability target."
The first perspective is examining, as regards economic activity and prices over the next two years or so, whether the outlook deemed most likely by the Bank of Japan follows a path of sustainable growth under price stability.
The second perspective is examining, in a longer term, various risks that are most relevant to the conduct of monetary policy aimed at achieving sustainable growth under price stability. In particular, financial imbalances will be examined as a risk that will significantly impact economic activity and prices when they materialize, although the probability of their emergence is low.
The Bank of Japan will, in light of deliberations from the two perspectives described above, outline the current view on monetary policy, and disclose it periodically mainly in the Outlook for Economic Activity and Prices (Outlook Report).
The Bank recognizes that Japan's economy faces the critical challenge of overcoming deflation as early as possible and returning to the sustainable growth path with price stability. This challenge will be met through the combination of efforts by a wide range of economic agents to strengthen the economy's growth potential and support from the financial side. Based on this recognition, while the Bank will provide support for financial institutions' efforts to strengthen the foundations for economic growth and to increase their lending, it will pursue aggressive monetary easing in a continuous manner by conducting its virtually zero interest rate policy as well as steadily increasing the amount outstanding of the Asset Purchase Program. The Bank continues to conduct monetary policy in an appropriate manner. The Bank will also do its utmost to ensure the stability of Japan's financial system, while giving particular attention to developments in global financial markets.
- Pursuing Powerful Monetary Easing
- Providing Support for Financial Institutions' Efforts to Strengthen the Foundations for Economic Growth and Stimulating Bank Lending
- 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 will pursue aggressive monetary easing, aiming to achieve the price stability target, through a virtually zero interest rate policy and purchases of financial assets mentioned below, as long as the Bank judges it appropriate to continue with each policy measure respectively:
(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
At the Monetary Policy Meeting in October 2010, the Bank established the Asset Purchase Program with a total size of about 35 trillion yen, which aimed 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. At the Monetary Policy Meeting in January 2013, the Bank decided that, after completing the current purchasing method, from January 2014, it will introduce a method of purchasing a certain amount of financial assets every month without setting any termination date.
2. Providing Support for Financial Institutions' Efforts to Strengthen the Foundations for Economic Growth and Stimulating Bank Lending
(1) 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.
(2) Stimulating Bank lending
The Bank introduced "The Fund-Provisioning Measure to Stimulate Bank Lending". This facility aims to provide long-term funds -- up to the amount equivalent to the net increase in lending -- at a low interest rate, without any limit, to financial institutions at their request, with a view to promoting their aggressive action and helping increase proactive credit demand of firms and households.
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 by about 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 by about 10 trillion yen) |
| Oct. 27, 2011 | Enhancement of Monetary Easing [PDF 30KB] (Increase in the size of the Asset Purchase Program by about 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 by about 10 trillion yen) |
| Apr. 27, 2012 | Enhancement of Monetary Easing [PDF 67KB] (Increase in the size of the Asset Purchase Program by about 5 trillion yen) |
| Jul. 12, 2012 | Statement on Monetary Policy [PDF 101KB] |
| Sep. 19, 2012 | Enhancement of Monetary Easing [PDF 86KB] (Increase in the size of the Asset Purchase Program by about 10 trillion yen) |
| Oct. 30, 2012 | Enhancement of Monetary Easing [PDF 89KB] (Increase in the size of the Asset Purchase Program by about 11 trillion yen, establishment of the framework for the fund-provisioning measure to stimulate bank lending, and release of "Measures Aimed at Overcoming Deflation") |
| Dec. 20, 2012 | Enhancement of Monetary Easing [PDF 113KB] (Increase in the total size of the Asset Purchase Program by about 10 trillion yen, decision on the operational details of the Stimulating Bank Lending Facility, and the chairman's instruction concerning the thinking on price stability) |
| Jan. 22, 2013 | Introduction of the "Price Stability Target" and the "Open-Ended Asset Purchasing Method" [PDF 72KB] (Introduction of the "price stability target," introduction of the "open-ended asset purchasing method," and joint statement of the Government and the Bank of Japan) |
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 February 2013) | Notes | ||
| Amount outstanding for individual funds-supplying operations (excluding amounts purchased through the Asset Purchase Program) | |||
| Outright purchases of JGBs | 66.5 trillion yen | Purchases 21.6 trillion yen per year: Mar. 18, 2009 [PDF 95KB] | |
| Outright purchases of treasury discount bills | 0 trillion yen (15.7 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 trillion yen | -- | |
| Purchases of CP with repurchase agreements | 0 trillion yen | -- | |
| Funds-supplying operation to support financial institutions in disaster areas | 0.4 trillion yen | -- | |
| Fund-provisioning measure to support strengthening the foundations for economic growth | 3.3 trillion yen | -- | |
| Asset Purchase Program | 70.0 trillion yen | For the amount outstanding for individual asset categories, please see Asset Purchase Program. | |
| Note: | Figures for the amount outstanding in this table are updated once a month. For the latest figures, please see the "(Related Material) Statistics". |
|---|
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 (as of the end of December 2013) |
Amount outstanding (as of the end of February 2013) |
||
|---|---|---|---|
| Asset purchases | 76 trillion | 46.4 trillion | |
|
|
JGBs | 44 trillion | 26.4 trillion |
| T-Bills | 24.5 trillion | 13.3 trillion | |
| CP | 2.2 trillion | 2.0 trillion | |
| Corporate bonds | 3.2 trillion | 3.0 trillion | |
| Exchange-traded funds (ETFs) | 2.1 trillion | 1.5 trillion | |
| Japan real estate investment trusts (J-REITs) | 0.13 trillion | 0.12 trillion | |
| Fixed-rate funds-supplying operation against pooled collateral | 25 trillion | 23.6 trillion | |
| Total | 101 trillion | 70.0 trillion | |
| Notes: | 1. After completing the current purchasing method, from January 2014, the Bank will introduce a method of purchasing a certain amount of financial assets every month without setting any termination date. Particularly, for some time, following the introduction of this method, the amount of monthly purchases is specified at about 13 trillion yen, of which 2 trillion yen is JGBs and 10 trillion yen is T-Bills. For financial assets other than JGBs and T-Bills, the Bank will aim to maintain the amount outstanding of those assets. For fixed-rate funds-supplying operation against pooled collateral, the Bank will aim to maintain about 25 trillion yen. |
|---|---|
| 2. Figures for maximum amount outstanding are approximate amounts. | |
| 3. Figures for the amount outstanding in this table are updated once a month. For the latest figures, please see the "(Related Material) Statistics". |
Reference
2. Providing Support for Financial Institutions' Efforts to Strengthen the Foundations for Economic Growth and Stimulating Bank Lending
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
| Date of loan disbursement (Releases) | Main rules | Special rules for equity investments and asset-based lending | Special rules for small-lot investments and loans | Special rules for the U.S. dollar lending arrangement | ||||
| Amount of loans (billion yen) | Number of borrowers | Amount of loans (billion yen) | Number of borrowers | Amount of loans (billion yen) | Number of borrowers | Amount of loans (million U.S. dollars) | Number of borrowers | |
| Sep. 6, 2010 (Sep. 1, 2010 [PDF 51KB]) |
462.5 | 47 | -- | -- | -- | -- | -- | -- |
|---|---|---|---|---|---|---|---|---|
| Dec. 7, 2010 (Nov. 30, 2010 [PDF 157KB]) |
998.3 | 106 | -- | -- | -- | -- | -- | -- |
| Mar. 7, 2011 (Feb. 28, 2011 [PDF 193KB]) |
722.1 | 122 | -- | -- | -- | -- | -- | -- |
| June 8, 2011 (May 31, 2011 [PDF 193KB]) |
829.6 | 126 | -- | -- | -- | -- | -- | -- |
| Sep. 6, 2011 (Aug. 31, 2011 [PDF 173KB]) |
139.5 | 99 | 38.1 | 17 | -- | -- | -- | -- |
| Dec. 7, 2011 (Nov. 30, 2011 [PDF 179KB]) |
162.9 | 85 | 17.5 | 9 | -- | -- | -- | -- |
| Mar. 7, 2012 (Feb. 29, 2012 [PDF 180KB]) |
146.9 | 80 | 38.0 | 13 | -- | -- | -- | -- |
| June 8, 2012 (May 31, 2012 [PDF 126KB]) |
289.6 | 87 | 21.4 | 11 | 3.0 | 9 | -- | -- |
| Sep. 6, 2012 (Aug. 31, 2012 [PDF 123KB]) |
212.2 | 71 | 3.6 | 7 | 1.466 | 27 | -- | -- |
| Oct. 19, 2012 (Oct. 16, 2012 [PDF 97KB]) |
-- | -- | -- | -- | -- | -- | 711 | 6 |
| Dec. 7, 2012 (Nov. 30, 2012 [PDF 94KB]) |
215.6 | 80 | 11.5 | 7 | 0.915 | 19 | 1,546 | 17 |
| Mar. 7, 2013 (Feb. 28, 2013 [PDF 215KB]) |
161.1 | 78 | 10.2 | 9 | 1.206 | 22 | 1,219 | 16 |
Stimulating Bank Lending
| Releases | |
| Fund-Provisioning Measure to Stimulate Bank Lending | Preliminary framework: Oct. 30, 2012 [PDF 89KB] Introduction: Dec. 20, 2012 [PDF 113KB] |
|---|
Reference
- Bank of Japan Review Series : Fund-Provisioning Measure to Support Strengthening the Foundations for Economic Growth (2010-E-5, September 1, 2010)
- Loan Support Program
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 |
