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Japan's Open Market Operations under the Quantitative Easing Policy*1

April 2005
Eiji Maeda*2
Bunya Fujiwara*3
Aiko Mineshima*4
Ken Taniguchi*5

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  • *1 This paper is an updated version of the preliminary paper submitted to the European Central Bank (ECB) workshop "Monetary Policy Implementation: Lessons from the past and challenges ahead" held on January 20 and 21, 2005.
  • *2 Open Market Operations Section, Financial Markets Department,
    e-mail: eiji.maeda@boj.or.jp
  • *3 Open Market Operations Section, Financial Markets Department,
    e-mail: bunya.fujiwara@boj.or.jp
  • *4 Open Market Operations Section, Financial Markets Department,
    e-mail: aiko.mineshima@boj.or.jp
  • *5 Open Market Operations Section, Financial Markets Department,
    e-mail: ken.taniguchi@boj.or.jp

Introduction

The Bank of Japan (hereinafter referred to as the Bank) determined to undertake the so-called "quantitative easing policy" in March 2001, in which current account balances at the Bank were adopted as the Bank's main operating target. Since the start of the quantitative easing policy, the Bank has raised the target level of current account balances several times. As the target level has far exceeded the level of required reserves, the adoption of the quantitative easing policy means that the Bank has had to provide additional funds to financial institutions that do not have incentives to hold a large amount of excess reserves. Such a policy has been unprecedented for any central bank. Thus, the achievement of the target has been a great challenge to the Bank. Under this policy, the Bank has taken various measures to achieve the target, facing occasional difficulties. Therefore, it would serve as a useful reference for other central banks, market participants, and academics to review the Bank's experiences of monetary policy implementation.

In this paper, as staff of the Open Market Operations Desk, we focus on the technical aspects of open market operations from the viewpoint of a practitioner rather than on the academic aspects, such as the effects of the quantitative easing policy on economic activities and prices. Before discussing our experiences with open market operations aimed at achieving the target under the quantitative easing policy in section 4, we will briefly explain the outline of the policy in section 2 and the basic characteristics of open market operations in Japan in section 3.