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Change in the Guideline for Money Market Operations

December 19, 2001
Bank of Japan

(For immediate release)

  1. At the Monetary Policy Meeting held today, the Bank of Japan decided to raise the main operating target, the outstanding balance of the current accounts at the Bank, and to take measures to strengthen money market operations (Annex).
  2. Japan's economy is deteriorating broadly and likely to undergo a severe adjustment phase for the time being.Against this background, looking at the stock market as well as the markets for commercial paper and corporate bonds, price differentials are widening reflecting the credit conditions of each firm.As such, financial institutions and investors are becoming more cautious.
  3. To some extent, this deterioration in the financial environment is the inevitable process associated with structural reform in the area of economy and industry as well as the restoration of a robust and sound financial system.Nevertheless, there is concern that, if the deterioration in the financial environment goes too far and adversely affects financing by firms in good condition, it could exert downward pressure on economic activity and prices.
  4. With these points in mind, today's decision is intended to secure that the financial markets continue to work in a stable manner and to ensure that economic recovery will be effectively supported from the monetary side.
  5. While carefully monitoring developments in economic activity as well as financial markets, the Bank will continue to make every effort as a central bank to prevent a continuous decline in prices and to establish a basis for the stable and sustainable growth of Japan's economy.

Annex

1. Change in the guideline for money market operations (attachment)

The Bank of Japan will conduct money market operations, aiming at the outstanding balance of the current accounts at the Bank at around 10 to 15 trillion yen.

Should there be a risk of financial market instability, such as a surge in liquidity demand, the Bank will provide more liquidity irrespective of the guideline above.

2. Increase in outright purchase of long-term government bonds

The Bank will increase its outright purchase of long-term government bonds from the current 600 billion yen per month or 7.2 trillion yen per year to 800 billion per month or 9.6 trillion yen per year.

3. Measures to strengthen money market operations

  1. 1) Making further use of Commercial Paper (CP) and Asset -backed Securities (ABS)
    1. a. For the time being, the Bank will more actively purchase CP under repurchase agreements (CP operations).
    2. b. The Bank will immediately examine operational issues to broaden the range of eligible CP for CP operations and collateral uses to include Asset-backed Commercial Paper (ABCP).Upon completing the examination, the Bank will bring it into effect with the approval at the Monetary Policy Meeting.
    3. c. The Bank will immediately examine operational issues to broaden the range of eligible ABS as collateral.Upon completing the examination, the Bank will bring it into effect with the approval at the Monetary Policy Meeting.More specifically, the range of eligible ABS, currently limited to those backed by lease receivables and credit receivables as well as collateralized bond obligations (CBO) and collateralized loan obligations (CLO), will be broadened to include those backed by mortgage loans and cash flows generated by real estate.
  2. 2) Improvement in the conduct of money market operations
    1. a. The Bank will increase the frequency of bill purchasing operations at the Bank's all offices.
    2. b. The Bank will allow all eligible counterparties to participate in the outright purchase of JGBs, JGB repo operations, CP operations, and bill selling operations.The current practice of changing participants in rotation within eligible counterparties will be abolished.

Attachment

December 19, 2001
Bank of Japan

At the Monetary Policy Meeting held today, the Bank of Japan decided, by majority vote, to set the following guideline for money market operations for the inter-meeting period:

The Bank of Japan will conduct money market operations, aiming at the outstanding balance of the current accounts at the Bank at around 10 to 15 trillion yen.

Should there be a risk of financial market instability, such as a surge in liquidity demand, the Bank will provide more liquidity irrespective of the guideline above.

(Reference)

Meeting hours :
December 18th : 14:00-15:21
December 19th :9:01-13:00, 13:31-14:54

Members present :
Masaru Hayami (Governor)
Sakuya Fujiwara (Deputy Governor)
Yutaka Yamaguchi (Deputy Governor)
Toshio Miki
Nobuyuki Nakahara
Kazuo Ueda
Teizo Taya
Miyako Suda
Shin Nakahara

(Others present)

December 18th
From Cabinet Office:
Kazumasa Iwata, Director General for Economic Assessment and Policy Analysis
(14:00-15:21)

From Ministry of Finance:
Hideto Fujii, Deputy Vice Minister for Policy Planning and Co-ordination
(14:00-15:21)

December 19th
From Cabinet Office:
Heizo Takenaka, Minister of State for Economic and Fiscal Policy
(9:01-11:20)Yuzo Kobayashi, Director General for Economic and Fiscal Management
(11:22-13:00, 13:31-14:06, 14:16-14:54)

From Ministry of Finance:
Seiichiro Murakami, Senior Vice-Minister
(9:01-13:00, 13:31-14:06, 14:16-14:54)

Release of Monthly Report of Recent Economic and Financial Developments:
(Consisting of "The Bank's View" and "The Background")

Japanese version of the entire report and English version of "The Bank's View"
14:00 on Thursday, December 20, 2001
English version of "The Background"
With in a few business days from the release of"The Bank's View"

Release of minutes :
14:00 on Monday, January 21, 2002