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May 31, 2011
Financial Markets Department
Bank of Japan
During fiscal 2010, as the conduct of money market operations, the Bank first provided ample funds to pursue powerful monetary easing, thereby ensuring financial market stability. Throughout fiscal 2010, the uncollateralized overnight call rate remained in line with the guideline for money market operations, and current account balances at the Bank followed an uptrend. Given the comprehensive monetary easing policy introduced on October 5, 2010, the Bank changed the target for the uncollateralized overnight call rate from "around 0.1 percent" to "around 0 to 0.1 percent." This resulted in a faster pace of increase in current account balances at the Bank. After the Great East Japan Earthquake occurred on March 11, 2011, the Bank provided, on successive days, an unprecedentedly large amount of funds to forestall instability in the money market. As a result, current account balances at the Bank set a new record high of 42.6 trillion yen on March 24, 2011.
Second, when there was a risk that financial market stability would deteriorate, the Bank made determined efforts to ensure financial market stability by appropriately responding to the situation while utilizing various operation tools. In May 2010, as tensions mounted in European money markets, the Bank acted to forestall instability in Japanese money markets by conducting three same-day funds-supplying operations. In light of the instability in international financial markets and the possible impact on liquidity in the yen market, the Bank reestablished the U.S. dollar funds-supplying operation. Following the Great East Japan Earthquake, to prevent destabilizing developments in the money markets, the Bank offered funds greatly exceeding the demand in the financial markets by conducting twelve same-day funds-supplying operations in total on six consecutive business days, while at the same time actively implementing forward-dated operations. In addition, to cope with the situation in which arbitrage between individual markets did not work well, the Bank resumed purchases of Japanese government bonds (JGBs) and CP with repurchase agreements.
Third, the Bank made efforts to smoothly conduct the operations introduced to pursue powerful monetary easing. These operations include the fixed-rate funds-supplying operation against pooled collateral and purchases of various financial assets such as JGBs, treasury discount bills (T-Bills), CP, corporate bonds, beneficiary interest in index-linked exchange-traded funds (ETFs) and investment equity issued by real estate investment corporations (J-REITs). Following the Great East Japan Earthquake, with a view to preventing any deterioration in business sentiment and any increase in risk aversion in financial markets from adversely affecting economic activity, the Bank increased the amount of asset purchases, mainly of risk assets such as CP and corporate bonds.
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Financial Markets Department, Bank of Japan
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