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June 11, 2012
Financial Markets Department
Bank of Japan
This paper explains the money market operations conducted by the Bank of Japan in fiscal 2011.
During fiscal 2011, the Bank pursued powerful monetary easing under "the comprehensive monetary easing policy." The Bank maintained the virtually zero interest rate policy and repeatedly increased the maximum amount outstanding of the Asset Purchase Program, introduced in October 2010, on a significant scale from about 40 trillion yen to about 65 trillion yen. In order to ensure financial market stability, the Bank provided ample funds to domestic markets. With regard to the provision of foreign currency funds, the Bank took coordinated actions with major central banks, such as a reduction of interest rates on the U.S. dollar funds-supplying operation. The Bank also made active contributions as the central bank, continuing and enhancing support to strengthen the foundations for economic growth and implementing support for financial institutions in disaster areas affected by the Great East Japan Earthquake.
Regarding the money market operations conducted under these policies, first, to pursue powerful monetary easing, the Bank made steady progress in terms of the Program with the fixed-rate funds-supplying operations against pooled collateral and purchases of various financial 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). The amount outstanding of the Program increased by 17.1 trillion yen during fiscal 2011 and reached 48.9 trillion yen at the end of fiscal 2011.
Second, in response to changes in the current account balances at the Bank caused by treasury accounts and others, the Bank conducted the variable-rate funds-supplying operations as necessary. Against the backdrop of the Bank's provision of ample funds including those through the Program, market confidence in funding conditions was maintained throughout the year. The uncollateralized overnight call rate remained in line with the guideline for money market operations, and longer-term interest rates declined to extremely low levels.
Third, to address heightened tensions in global financial markets, the Bank continued to offer the U.S. dollar funds-supplying operations. In November, in response to significant rises in U.S. dollar funding costs in global money markets, the Bank, in cooperation with five other central banks -- namely, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank -- took measures to enhance the capacity to provide liquidity support to the global financial system, by reducing interest rates on the U.S. dollar funds-supplying operations and establishing bilateral liquidity swap arrangements among the central banks that would enable provision of liquidity in any of their currencies. As a result, U.S. dollar liquidity funding costs, mainly in foreign exchange swap markets, declined significantly after the beginning of 2012.
This paper first explains developments in financial markets and the conduct of money market operations. It then discusses changes in the Bank's balance sheet as a result of the money market operations. Last, the paper describes the conducts of individual measures for the money market operations.
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Financial Markets Department, Bank of Japan
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