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

Answer

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 the guideline 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 a guideline 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 a guideline 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.

Thereafter, 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 such an operating target for interest rates, through the Asset Purchase Program, the Bank provided 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. A guideline for money market operations, such as the following, was 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. As for the guideline for JGB purchases, for example, it was stated 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 is 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, it was decided, for example, as follows: "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."

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For public statements at the time of the introduction of each policy measure, see Monetary Policy Releases.