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QuestionWhat are outright purchases of Japanese government bonds (JGBs)?

Answer

Outright purchases of JGBs are one of the Bank's open market operations through which the Bank supplies funds to financial markets by purchasing JGBs with coupons. Since the introduction of Quantitative and Qualitative Monetary Easing with Yield Curve Control in September 2016, the Bank has conducted outright purchases of JGBs to achieve the target level of the long-term interest rate specified by the guideline for market operations. Given the relationship between bond prices and yields where bond yields decline when its prices rise, it is expected that a rise in JGB prices and a decline in long-term interest rates will occur when, for example, supply-demand conditions in the JGB market tighten driven by an increase in the Bank's outright purchases of JGBs.

There are two major auction methods for outright purchases of JGBs: the competitive auction method and the fixed-rate method. Under the competitive auction method, the Bank accepts bids, starting with the highest yield bid (the bid with the lowest price), followed by the second highest and so on. Under the fixed-rate method, the Bank conducts purchases at a fixed rate determined in advance by the Bank for each purchase up to an unlimited amount or an amount set in advance.

For developments in the amount outstanding of JGBs purchased outright, see Monetary Base and the Bank of Japan's Transactions, which is released every month by the Bank.

The Bank's purchases of JGBs are executed for the purpose of conducting monetary policy and not for financing fiscal deficits. The government, in a joint statement released with the Bank in January 2013, stated that "in strengthening coordination between the Government and the Bank of Japan, the Government will steadily promote measures aimed at establishing a sustainable fiscal structure with a view to ensuring the credibility of fiscal management."