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A Guide to Bank of Japan's Market Operations*1

  • *1This paper is an English translation of the Japanese original released in February 2000.

August 2000
Atsushi Miyanoya

Papers in the Financial Markets Department Working Paper Series are circulated in order to stimulate discussion and comments. Views expressed are those of authors and do not necessarily reflect those of the Bank of Japan or the Financial Markets Department.
If you have any comment or question on the working paper series, please contact each author whose e-mail address is shown in the columns next to each title.

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As seen from the many questions we are asked and news reports, market operations by the Bank of Japan are recently the focus of much attention from the public including market participants, analysts, and the press. This paper reflects my personal effort to assist these people and many others to gain a deeper understanding of the market operations carried out by the Bank. It includes an explanation of the role of the Bank's market operations in implementing monetary policy and the current operational framework.

Specifically, Chapter II explains the role of market operations at present, and Chapter III, their operational framework. Chapter IV attempts to answer questions on market operations we have been asked since the introduction of the zero interest rate policy. Chapter V then introduces the details of the changes announced on February 14, 2000, regarding market operations data. Finally, Chapter VI discusses issues for the future.2

  1. This paper has been written by Mr. Atsushi Miyanoya, Chief Manager of the Open Market Operations Division of the Financial Markets Department, with the cooperation of divisional staff.
    If you have any comments or questions on this paper, please contact the author by e-mail ( or by mail (C.P.O. Box 30, Tokyo 103-8660).
  2. Specific practices of market operations are as of the time this paper was written, and any possible misexplanation is the sole responsibility of the author. All opinions in this paper are personal and, therefore, do not represent the view of the Bank of Japan or the Bank's Financial Markets Department.

Table of Contents

  • I. Introduction
  • II. What Are Market Operations?
    • A. Monetary Policy and Market Operations
    • B. The Guideline for Market Operations
    • C. The Role of Market Operations
  • III. The Framework of Market Operations
    • A. "Funds" to Be Adjusted through Market Operations
    • B. The Mechanism of Guiding the Overnight Interest Rate through Market Operations
    • C. Factors Affecting the Overnight Call Rate: (1) Demand for CABs
    • D. Factors Affecting the Overnight Call Rate: (2) Exogenous Factors Affecting CABs
    • E. Determining the Amount of Funds Provision through Market Operations
    • F. Determining the Method of Funds Provision/Absorption
  • IV. Issues concerning Market Operations under the Zero Interest Rate Policy
    • A. Perception of the Projected Daily Excess/Shortfall of Reserves as a Signal of the Policy Stance
    • B. The Credibility of Market Operations Data
    • C. Drop in Remaining Required Reserves due to the Bank's Continued Provision of Ample Funds in the Market
    • D. Under-Subscription in Market Operations
  • V. Changes regarding Market Operations Data
    • A. Enhancing the Transparency of Market Operations
    • B. Changes to the Table for "Supply and Demand of Funds and Market Operations" and the Discontinuation of Announcement of the Projected Reserve Excess/Shortfall
  • VI. Conclusion