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August 1, 2016
Financial Markets Department
Bank of Japan
During fiscal 2015 (April 1, 2015 to March 31, 2016), the Bank of Japan pursued extremely powerful monetary easing under quantitative and qualitative monetary easing (QQE) and significantly increased the amount outstanding of the monetary base through purchases of a wide range of assets, including large-scale purchases of Japanese government bonds (JGBs). Furthermore, in January 2016, the Bank decided to introduce QQE with a Negative Interest Rate, and pursue further monetary easing by making full use of possible measures in terms of three dimensions: quantity, quality, and interest rate.
The Bank conducted its money market operations so that the monetary base would increase at an annual pace of about 80 trillion yen through purchases of a wide range of assets, including purchases of JGBs, treasury discount bills (T-Bills), CP, corporate bonds, exchange-traded funds (ETFs), and Japan real estate investment trusts (J-REITs). This was in accordance with the guideline for money market operations under QQE, which was introduced in April 2013 and which expanded in October 2014. Furthermore, at the Monetary Policy Meeting (MPM) held on January 28 and 29, 2016, the Bank decided to introduce QQE with a Negative Interest Rate. Specifically, the Bank decided to divide the outstanding balance of a financial institution's current account at the Bank into three tiers; of this, a part of the balance would be subject to a negative interest rate. This was decided to lower the short end of the yield curve and exert further downward pressure on interest rates across the entire yield curve in combination with large-scale purchases of JGBs as conducted earlier.
As a result of these money market operations, the monetary base at the end of 2015 stood at 356.1 trillion yen, an increase of 80.3 trillion yen from the same time a year earlier. Furthermore, the Bank continued to steadily increase the monetary base after the introduction of a negative rate which reached 375.7 trillion yen at the end of March 2016, an increase of 79.8 trillion yen from the same time a year earlier. The amount outstanding of JGBs held by the Bank reached 282.0 trillion yen at the end of 2015, an increase of 80.3 trillion yen from the same time a year earlier, and 301.9 trillion yen at the end of March 2016, an increase of 81.8 trillion yen from the same time a year earlier.
At the MPM held on December 17 and 18, 2015, the Bank decided to introduce supplementary measures for QQE. Specifically, it decided to extend the average remaining maturity of its JGB purchases from about 7-10 years to about 7-12 years. Furthermore, it decided to establish a new program for purchasing ETFs composed of stocks issued by firms that are proactively making investment in physical and human capital. The Bank also decided to increase the maximum amount of each issue of J-REIT to be purchased.
This paper is organized as follows. First, it outlines the conduct of money market operations by the Bank during fiscal 2015, followed by an overview of developments in domestic money and bond markets under the conduct of these money market operations. Second, it describes the conduct of the measures in money market operations, followed by a discussion of systemic changes related to money market operations. Finally, the paper presents the Bank's actions to enhance dialogue with market participants. In addition, there is a somewhat detailed description of the three-tier system of the current account balances under QQE with a Negative Interest Rate.
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Financial Markets Department, Bank of Japan
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