QuestionHow have the Bank's guidelines for market operations changed?

In the past, the Bank conducted monetary policy -- monetary easing or tightening -- by changing the reserve requirement ratios and the official discount rates.

In 1994, deregulation of interest rates was completed, and the Bank started open market operations in 1995 to guide money market rates to target levels. In its guidelines for money market operations from 1998, the Bank set a specific operating target for money market operations, such as the following: "The Bank of Japan will encourage the uncollateralized overnight call rate to move on average around XX percent." During 1999 and 2000, the Bank implemented the so-called zero interest rate policy and set guidelines for money market operations, such as the following: "The Bank of Japan will . . . encourage the uncollateralized overnight call rate to move as low as possible."

In 2001, the Bank adopted a quantitative easing policy and changed the main operating target for money market operations from the uncollateralized overnight call rate to the outstanding balance of the current accounts at the Bank. The Bank set guidelines for money market operations under this policy, such as the following: "The Bank of Japan will conduct money market operations, aiming the outstanding balance of the current accounts at the Bank at around XX trillion yen." In 2006, when the Bank terminated the quantitative easing policy, the operating target for money market operations was changed back to the uncollateralized overnight call rate.

In 2010, the Bank introduced a comprehensive monetary easing policy, and the guideline for money market operations was set as follows: "The Bank of Japan will encourage the uncollateralized overnight call rate to remain at around 0 to 0.1 percent." In addition to this operating target for interest rates, the Bank used the Asset Purchase Program to provide funds through the fixed-rate funds-supplying operation against pooled collateral and purchased assets such as Japanese government bonds (JGBs), treasury discount bills (T-Bills), CP, corporate bonds, exchange-traded funds (ETFs), and Japan real estate investment trusts (J-REITs).

In 2013, the Bank introduced quantitative and qualitative monetary easing (QQE) and changed the main operating target for money market operations from the uncollateralized overnight call rate to the monetary base. Guidelines for money market operations, such as the following, were set: "The Bank of Japan will conduct money market operations so that the monetary base will increase at an annual pace of about XX trillion yen." At the same time, the Bank decided the guidelines for asset purchases. Regarding guidelines for JGB purchases, it was stated, for example, that "the Bank will purchase JGBs so that their amount outstanding will increase at an annual pace of about XX trillion yen." It was also stated that the Bank would continue with the purchase of JGBs, CP, corporate bonds, ETFs, and J-REITs.

Under QQE with a Negative Interest Rate, which was introduced in January 2016, the guidelines for money market operations and asset purchases were maintained, and the Complementary Deposit Facility was amended so that a negative interest rate of minus 0.1 percent would be applied to Policy-Rate Balances in current accounts held by financial institutions at the Bank.

At the Monetary Policy Meeting (MPM) held in September 2016, QQE with Yield Curve Control was introduced, and the guideline for market operations specified a short-term policy interest rate and a target level of a long-term interest rate. Specifically, for the short-term policy interest rate, the following decision was made at the meeting: "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." As for the target level of the long-term interest rate, the Bank's decision included the following: "The Bank will purchase 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 of about 80 trillion yen -- aiming to achieve the target level of the long-term interest rate specified by the guideline." It was also decided that the purchase of CP, corporate bonds, ETFs, and J-REITs would continue in line with the guidelines.

At the MPM held in July 2018, the Bank decided to conduct market operations as well as asset purchases in a more flexible manner, in order to enhance the sustainability of QQE with Yield Curve Control. The guidelines for such operations and purchases basically remained the same as before. However, the guideline for the long-term interest rate, for example, was decided as follows: "The Bank will purchase JGBs so that 10-year JGB yields will remain at around zero percent. While doing so, the yields may move upward and downward to some extent mainly depending on developments in economic activity and prices. With regard to the amount of JGBs to be purchased, the Bank will conduct purchases in a flexible manner so that their amount outstanding will increase at an annual pace of about 80 trillion yen."

At the MPM held in April 2020, the Bank decided on Enhancement of Monetary Easing in response to COVID-19. As part of such enhancement, given the possible impact on the bond market of the increase in the amounts of JGBs and T-Bills issued in response to the government's emergency economic measures in a situation where the liquidity in the market remained low, it decided to conduct further active purchases of both JGBs and T-Bills for the time being, with a view to maintaining stability in the bond market and stabilizing the entire yield curve at a low level. In line with this, the guideline for the long-term interest rate was decided as follows: "The Bank will purchase a necessary amount of JGBs without setting an upper limit so that 10-year JGB yields will remain at around zero percent. While doing so, the yields may move upward and downward to some extent, mainly depending on developments in economic activity and prices."

At the MPM held in March 2021, the Bank conducted the Assessment for Further Effective and Sustainable Monetary Easing [PDF 4,374KB]. Based on the findings, the Bank judged that the following was important: with a view to achieving the price stability target of 2 percent, the Bank would continue with monetary easing in a sustainable manner and make nimble and effective responses without hesitation to counter changes in developments in economic activity and prices, as well as in financial conditions. Accordingly, it decided upon policy actions. One of these included the Bank's clarification that the range of 10-year JGB yield fluctuations would be between around plus and minus 0.25 percentage points from the target level. This action is aimed at conducting yield curve control flexibly during normal times under the guideline for the long-term interest rate that "the Bank will purchase a necessary amount of JGBs without setting an upper limit so that 10-year JGB yields will remain at around zero percent."

At the MPM held in December 2022, the Bank decided to modify the conduct of yield curve control in order to improve market functioning and encourage a smoother formation of the entire yield curve, while maintaining accommodative financial conditions. As part of the decision, while significantly increasing the amount of JGB purchases, the Bank expanded the range of 10-year JGB yield fluctuations from the target level: from between around plus and minus 0.25 percentage points to between around plus and minus 0.5 percentage points. The following guideline for the long-term interest rate was maintained at the MPM: "The Bank will purchase a necessary amount of JGBs without setting an upper limit so that 10-year JGB yields will remain at around zero percent."

At the MPM held in July 2023, taking account of extremely high uncertainties for economic activity and prices, the Bank decided to conduct yield curve control with greater flexibility in order to enhance the sustainability of monetary easing under the yield curve control framework by nimbly responding to both upside and downside risks to Japan's economic activity and prices. As part of the decision, the Bank maintained the target level of 10-year JGB yields at "around zero percent" and the fluctuation range of these yields at "around plus and minus 0.5 percentage points from the target level," while it allowed greater flexibility in its conduct of yield curve control, regarding the upper and lower bounds of the range as references, not as rigid limits, in its market operations.