Price Stability Target of 2 Percent and Quantitative and Qualitative Monetary Easing with Yield Curve Control
Price Stability Target of 2 Percent
The Bank of Japan Act states that the Bank's monetary policy should be aimed at "achieving price stability, thereby contributing to the sound development of the national economy."
Price stability is important because it provides the foundation for the nation's economic activity.
In a market economy, individuals and firms make decisions on whether to consume or invest, based on the prices of goods and services. When prices fluctuate, individuals and firms find it hard to make appropriate consumption and investment decisions, and this can hinder the efficient allocation of resources in the economy. Unstable prices can also distort income distribution.
On this basis, the Bank in January 2013 set the price stability target at 2 percent in terms of the year-on-year rate of change in the consumer price index (CPI), and it has made a commitment to achieving this target at the earliest possible time.
For details, please see The "Price Stability Target" under the Framework for the Conduct of Monetary Policy [PDF 18KB] (released on January 22, 2013). Also, the Bank released the statement titled Joint Statement of the Government and the Bank of Japan on Overcoming Deflation and Achieving Sustainable Economic Growth [PDF 14KB] with the government in January 2013.
Quantitative and Qualitative Monetary Easing with Yield Curve Control
At the September 2016 Monetary Policy Meeting, the Bank conducted a comprehensive assessment of the developments in economic activity and prices as well as the policy effects since the introduction of quantitative and qualitative monetary easing (QQE) (released as the Comprehensive Assessment [PDF 812KB]). Based on its findings, the Bank decided to introduce QQE with Yield Curve Control, a new framework for strengthening monetary easing. For details, refer to New Framework for Strengthening Monetary Easing: "Quantitative and Qualitative Monetary Easing with Yield Curve Control" [PDF44KB] (released on September 21, 2016).
This policy framework consists of two components: the first is "yield curve control," in which the Bank controls short- and long-term interest rates through market operations; the second is an "inflation-overshooting commitment," in which the Bank commits to continuing to expand the monetary base until the year-on-year rate of increase in the observed CPI exceeds 2 percent and stays above the target in a stable manner.
- 1. Yield curve control
As shown in the Comprehensive Assessment, QQE -- which was introduced in April 2013 -- has brought about improvements in economic activity and prices mainly through the decline in real interest rates, and Japan's economy is no longer in deflation, in the sense of a sustained decline in prices. With this in mind, yield curve control, through which the Bank seeks a decline in real interest rates by controlling short- and long-term interest rates, has been placed at the core of the policy framework.
The experience so far with the negative interest rate policy, which was introduced in January 2016, is that a combination of a negative interest rate on financial institutions' current account balances at the Bank and purchases of Japanese government bonds (JGBs) is effective for yield curve control. In addition, the Bank has adopted the fixed-rate purchase operations and the fixed-rate purchase operations for consecutive days in order to achieve the smooth conduct of yield curve control.
- 2. Inflation-overshooting commitment
Through the inflation-overshooting commitment, the Bank commits to continuing to expand the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds 2 percent and stays above the target in a stable manner. With this commitment, the Bank aims to enhance the credibility of achieving the price stability target of 2 percent among the public.
With a view to persistently continuing with powerful monetary easing, the Bank decided in July 2018 to strengthen its commitment to achieving the price stability target by introducing forward guidance for the policy rates, and to enhance the sustainability of QQE with Yield Curve Control (Strengthening the Framework for Continuous Powerful Monetary Easing [PDF92KB]).
In March 2021, the Bank conducted an assessment for further effective and sustainable monetary easing, with a view to achieving the price stability target of 2 percent (Assessment for Further Effective and Sustainable Monetary Easing [PDF 4,374KB]). Based on the findings, the Bank took policy actions, such as the establishment of the Interest Scheme to Promote Lending, so that it can continue with monetary easing in a sustainable manner and make nimble and effective responses without hesitation to counter changes in the situation (Further Effective and Sustainable Monetary Easing [PDF 360KB]).
The Bank decided in December 2022 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 (Statement on Monetary Policy [PDF 203KB]).
In April 2023, the Bank reexamined and clarified its stance on the future conduct of monetary policy (Statement on Monetary Policy [PDF 371KB]).
Taking account of extremely high uncertainties for economic activity and prices, the Bank decided in July 2023 to conduct yield curve control with greater flexibility in order to enhance the sustainability of monetary easing under yield curve control framework by nimbly responding to both upside and downside risks to Japan's economic activity and prices (Statement on Monetary Policy [PDF 455KB]).
The decisions made and policy actions taken under QQE with Yield Curve Control can be found in Monetary Policy Releases.
(Reference) The Bank's Conduct of Monetary Policy before the Introduction of Yield Curve Control
The Bank introduced QQE in April 2013, expanded it in October 2014, introduced supplementary measures in December 2015, introduced QQE with a Negative Interest Rate in January 2016, and enhanced monetary easing in July 2016. For details, see the following.