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On Today's Decision at the Monetary Policy Meeting

February 28, 2002
Bank of Japan

(For immediate release)

  1. As a result of strong monetary easing by the Bank of Japan, extremely accommodative conditions are being maintained in the financial markets. Short-term interest rates have declined to virtually zero percent while the year-on-year growth rate of monetary base has reached nearly 30 percent.
  2. With the end of a fiscal year approaching, however, there is a possibility that liquidity demand will increase further depending on the financial market developments. It is thus extremely important to take all possible measures to secure the financial market stability in order to prevent a deflationary spiral and to pursue a sustainable economic growth.
  3. Against this background, the Bank has decided to take the following measures.
    1. 1) Providing ample liquidity towards the end of a fiscal year
      For the time being, to secure the financial market stability towards the end of a fiscal year, the Bank will provide more liquidity to meet a surge in demand irrespective of the target of current account balances, around 10 to 15 trillion yen (attachment).
    2. 2) Increasing the outright purchase of long-term government bonds
      In order to provide liquidity smoothly, the Bank will increase the outright purchase of long-term government bonds from the current 800 billion yen per month (or 9. 6 trillion yen per year) to 1 trillion yen per month (or 12 trillion yen per year).
    3. 3) Easing the restriction on the use of the Lombard-type lending facility
      In the period starting March 1st and ending April 15th, the end of the March reserve maintenance period, the Bank will apply the official discount rate to the Lombard-type lending facility on any business day, suspending the current restriction on the maximum number of days for such use, namely five business days in a reserve maintenance period.
    4. 4) Examining issues to broaden the range of eligible collateral
      The Bank will immediately examine operational issues to broaden the range of eligible collateral to include loans to the Deposit Insurance Corporation as well as loans to the Government's "Special Account for the Allotment of Local Allocation Tax and Local Transfer Tax. "In the process, the Bank will consult with concerned parties to take necessary steps including those for making such loans negotiable.
  4. To realize the full permeation of the effects of strong monetary easing, it is essential to strengthen a financial system and ensure its stability by making a swift move to resolve the non-performing loan problem. It is also vital to make progress in structural reform on the economic and industrial fronts through tax reform, streamlining of public financial institutions, and deregulation. The Bank strongly hopes that both the Government and the private sector, in particular financial institutions, will take more determined and effective steps in this regard.
  5. The recent price decline reflects the widening output gap in the economy as well as the effects of structural changes in the supply-side including a rise in the import penetration ratio. In order to exit from deflation, it is indispensable to revitalize economic activity and to bring the economy back to a sustainable growth path through decisive steps including those described in paragraph 4.
  6. The Bank of Japan is determined to continue its utmost efforts as a central bank by a) providing ample liquidity to the market and b) preventing systemic risk from materializing as the lender of last resort.


February 28, 2002
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 intermeeting 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.

For the time being, to secure the financial market stability towards the end of a fiscal year, the Bank will provide more liquidity irrespective of the guideline above.


Meeting hours :

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)

From Ministry of Finance :
Takayoshi Taniguchi, Senior Vice-Minister
( 9:00-13:22, 13:32-13:54)

From Cabinet Office :
Yuzo Kobayashi, Vice-Minister for Economic and Fiscal Policy
( 9:00-13:22, 13:32-13:54)

Release of minutes :
2:00 p.m. on Tuesday, April 16