Japan
Japan[¥]
Institutional framework
The Bank of Japan Act states that the Bank's monetary policy should be "aimed at achieving price stability, thereby contributing to the sound development of the national economy". The Bank set the "price stability target" at 2 percent in terms of the year-on-year rate of change in the consumer price index (CPI) in January 2013, and has made a commitment to achieving this target at the earliest possible time.
The basic stance for monetary policy is decided by the Policy Board at Monetary Policy Meetings (MPMs). At MPMs, the Policy Board discusses the economic and financial situation, decides the guideline for market operations and the Bank's monetary policy stance for the immediate future, and announces decisions immediately after the meeting concerned. Based on the guideline, the Bank sets the amount of daily market operations and chooses types of operational instruments, and provides and absorbs funds in the market.
The current policy framework, Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control, consists of two major components: the first is "yield curve control" in which the Bank controls short-term and long-term interest rates through market operations; and the second is an "inflation-overshooting commitment" in which the Bank commits itself to expanding the monetary base until the year-on-year rate of increase in the observed consumer price index exceeds the price stability target of 2 percent and stays above the target in a stable manner.
Key features of the monetary policy implementation framework
For policy implementation, the bank conducts the following measures in market operations.
The Bank adopts a three-tier system in which the outstanding balance of each financial institution's current account at the Bank is divided into three tiers, to which a positive interest rate (the basic balance), a zero interest rate (the macro add-on balance), or a negative interest rate is applied (the policy-rate balance), respectively. The interest rate applied to the policy-rate balance is regarded as the "short-term policy interest rate" and its level is to be decided at every MPM. The three-tier system encourages arbitrage trading at negative interest rates in money markets. Financial institutions have an incentive to ensure profit margins (reduce their policy-rate balances) by borrowing (lending) cash at interest rates that are lower (higher) than those applied according to their current account balances at the Bank and depositing funds in their current accounts at the Bank (supplying funds from their current accounts). The Bank reviews the "Benchmark Ratio Used to Calculate the Macro Add-on Balance" once every three months in principle to adjust the macro add-on balance and thereby the policy-rate balance to the appropriate levels.
The Bank offers outright purchases of T-Bills. The Bank decides the purchase size per auction considering the effects on financial markets.
The Bank purchases JGBs so that 10-year JGB yields would remain at around the "operating target for the long-term interest rate". While purchasing JGBs, the yields may move upward and downward to some extent mainly depending on developments in economic activity and prices. With regard to the amount of JGBs to be purchased, the Bank conducts purchases in a flexible manner so that their amount outstanding will increase at an annual pace determined at the MPMs. In situations involving a rapid increase in the yields, the Bank would purchase JGBs promptly and appropriately.
The Bank purchases ETFs and J-REITs so that the amounts outstanding of its holdings will increase at annual paces in accordance with the guidelines decided at the MPMs. With a view to lowering risk premia of asset prices in an appropriate manner, the Bank may increase or decrease the amounts of purchases depending on market conditions.
The Bank purchases other assets, including CP and corporate bonds, in accordance with the guidelines for asset purchases decided at the MPMs. Also, the Bank conducts other operations, including the funds-supplying operations against pooled collateral, growth-supporting funding facility, stimulating bank lending facility, funds-supplying operation to support financial institutions in disaster areas, funds-supplying operation to support financial institutions in disaster areas of the 2016 Kumamoto earthquake, securities lending facility, US dollar funds-supplying operations, securities lending to provide JGSs as collateral for the US dollar funds-supplying, and the complementary lending facility.
Under QQE with Yield Curve Control, the Bank carefully examines the developments and functioning of financial markets as well as the impact of the Bank's operations on financial markets. Also, with a view to further deepening dialogue with market participants, the Bank conducts daily market monitoring and various market surveys and holds various meetings with market participants.
Institutional setup of monetary policy decisions and operations
Policy decision body, size and composition | Policy Board |
---|---|
Major mandates | Achievement of price stability |
Decision-making process | Majority decision |
Frequency / length of meetings | 8 times a year |
Frequency of announcements | Same |
Main policy target | Policy target: 2 percent in terms of the year-on-year rate of change in the CPI. Policy tools: yield curve control, asset purchases, and forward guidance. |
Overview of key features
Key policy rate | (i) Interest rate applied to the Policy-Rate Balances in current accounts, (ii) JGB yield |
---|---|
maturity (days) | (i) 1 day (ii) 10 years |
Operating target | (i) Interest rate applied to the Policy-Rate Balances in current accounts, (ii) JGB yield |
maturity (days) | (i) 1 day (ii) 10 years |
Standing facilities | Lending, deposit |
Corridor width (bp) | 40 Lending (the basic loan rate): 30bps Deposit (the short-term policy interest rate): – 10bps |
Reserve requirements | Yes |
maintenance period | 1 month |
Main operation | (i) JGS purchases (ii) CP/CB purchases (iii) ETFs / J-REITs purchases (iv)Fixed rate lending |
functions | Quantitative and Qualitative Monetary Easing with Yield Curve Control |
maturity (days) | Quantitative and Qualitative Monetary Easing with Yield Curve Control |
regular interval | Quantitative and Qualitative Monetary Easing with Yield Curve Control |
frequency | Quantitative and Qualitative Monetary Easing with Yield Curve Control |
Overall frequency | >1 x d |
Discretion left to operational desk | Choice of instruments, size and timing of individual operations, adjustment factor for calculating current account balance which is the interest rate of 0% is applied to, though the annual pace of amounts outstanding increase of ETFs, J-REITs, CP and corporate bonds are directed by the policy board. |
Key policy signals via | |
announcement | √ |
keynote tender | √ |
standing facility | √ |
other | √ |
Monetary policy communication
Explicit use of forward guidance | Yes. Forward guidance for policy rates, continuation of “Quantitative and Qualitative Monetary Easing with Yield Curve Control,” and continuation of expanding monetary base. |
---|---|
Timing / media of policy announcement | Yes. Immediately after each Monetary Policy Meeting; central bank website. |
Policy announcement and documents | Yield curve control (guideline for market operations); guideline for asset purchases. |
Explaining policy decisions | Press conference by the Governor |
Dissemination of minutes (timing / media) | Yes. Three business days after the next monetary policy meeting. Summary of opinions is released six business days after each monetary policy meeting. |
Content of minutes | Economic and financial developments, and monetary policy decisions. |
Publication of forecasts | Yes. Outlook for economic activity and prices. |
Publication of projected path of policy rate | No |
Reserve requirements: ratios and size
Main functions served | Liquidity management |
---|---|
Domestic currency | 0.05–1.3% |
Foreign currency | 0.15–0.25% |
Average | 0.85% |
Required reserves | JPY 10.1 trn |
Required reserve as % of GDP | 1.83% |
Actual reserves | JPY 341.8 trn |
Actual reserve as % of GDP | 61.8% |
Main features of reserve requirements
Averaging | Y |
---|---|
Carry-over | N |
Type | Half-lagged |
Maintenance period | 1 month |
end (day) | 15th |
Calculation period | 1 month |
end (day) | end-month |
Lag before maintenance | 15 days |
Vault cash | N |
restrictions | |
Remuneration | Y |
average rate | 0.1% |
marginal rate | 0.1% |
Framework last changed | 11/08 |
Liquidity position and forecasting
Structural Position | Deficit |
---|---|
Most volatile factor(s) | Government sector flows, Banknotes |
Most unpredictable factor(s) | Foreign central banks’ deposits, Government sector flows |
Forecast horizon(s) | Daily and monthly |
Frequency | Daily |
Frequency of revision | Daily |
Forecast published? | Yes, daily |
Standing facilities: lending / market ceiling
Name | Complementary lending facility |
---|---|
Form | Fixed-term loan |
Pricing method | Basic loan rate |
Maturity | O/N |
Access limited by/to | Eligible collateral; BOJ counterparties only |
Function(s) | Marginal accommodation; limit interest rate volatility |
Standing facilities: deposit / market floor
Name | Complementary deposit facility |
---|---|
Form | Deposit |
Pricing method | Different fixed rates applied depending upon the level of outstanding balance of financial institution’s current account at the bank |
Maturity | 1 day |
Access limited by/to | Reserve depository institutions and some other financial institutions which have a current account at the Bank |
Function(s) | Lower the short end of the yield curve |
Open market operations: repo or reverse repo
Name/Type | (i) RRP (ii) RP |
---|---|
Maturity | (i) up to 1 year (ii) up to 6 months |
Frequency | As needed |
Pricing method | Auction |
Access limited by/to | Financial institutions, financial instruments firms that conduct the first financial instruments business, securities finance companies, and tanshi companies |
Function(s) | (i) Liquidity injection (ii) Liquidity withdrawal |
Open market operations: central bank bills
Name | Bills drawn by BOJ |
---|---|
Total issuance | None as of the end of 2019/8 |
Maturity | 1day – 1week |
Restrictions on possible maturities | Up to 3 months |
Pricing method | Conventional auction |
Access limited by/to | Financial institutions, financial instruments firms that conduct the first financial instruments business, securities finance companies, and tanshi companies |
Discretion left to operational desk | Maturity, size and timing of operations |
Open market operations: FX swaps
Maturity | N/A |
---|---|
Frequency | N/A |
Pricing method | N/A |
Access limited by/to | N/A |
Function(s) | N/A |
Other significant liquidity management means
Name/Type | (i) OT purchases of JGS, CP/CB, ETF/J-REIT (ii) Funds – supplying operations against pooled collateral (iii) Loan support program (iv) SLF (Securities lending facility) |
---|---|
Form | (i) OT purchases (ii) Auction lending and fixed rate lending (iii) RP |
Frequency | (i) 1 x day (ii) 1–3 x day (iii) 1–2 x day |
Maturity | (i) up to 40 years (ii) Auction lending: up to 1 year, fixed rate lending: up to 10 years (iii) 1 day |
Pricing Method | i) Auction / Bilateral / Fixed rate (ii) Auction / Fixed rate (iii) Auction rate |
Access limited by/to | Financial institutions, financial instruments firms that conduct the first financial instruments business, securities finance companies, and tanshi companies. |
Function(s) | (i) To encourage a decline in longer-term interest rates and various risk premiums (ii) Gross tuning (iii) To provide a temporary and secondary source of JGBs to the markets |
Settlement systems and intra-day liquidity facilities
Settlement system | RTGS, since 2001 |
---|---|
Intra-day liquidity facility | Collateralised intra-day overdraft |
Charge | No charge |
Foreign currency settlement system | No |
CLS participation by banks | Yes |
Other settlement system(s) | Yes |
Collateral
Standing facilities: List of eligible collateral | Government Bonds, Treasury Discount Bills, Government-guaranteed Bonds, Municipal Bonds, Fiscal Investment and Loan Program Agency Bonds, Corporate Bonds, CP, Bills drawn by companies, ABSs, ABCP, Foreign Government Bonds, Bonds issued by Real Estate Investment Corporations, Bill drawn by Real Estate Investment Corporations, International Financial Institution Bonds, Electronically Recorded Monetary Claims on Companies, Loans on Deeds to Companies, Electronically Recorded Monetary Claims on the Government (including Government's Special Accounts), Loans on Deeds to the Government (including Government’s Special Account, Electronically Recorded Monetary Claims with Government Guarantees, Loans on Deeds with Government Guarantees, Electronically Recorded Monetary Claims on Real Estate investment Corporations, Loans on Deeds to Real Estate investment Corporations, Electronically Recorded Monetary Claims on Municipal Governments, Loans on Deeds to Municipal Governments, Foreign Government Bonds of US, UK, Germany or France, denominated in local currency, Loans on Deeds to Companies Denominated in the US Dollar, Beneficial Interest of a Trust in Housing Loans. |
---|---|
Standing facilities: Discretion of central bank on collateral | Categories of collateral are directed by the policy board |
Open market operations: List of eligible collateral | Same as those of standing facilities |
Open market operations: Discretion of central bank on collateral | Same as those of standing facilities |
Dissemination of operational information: liquidity forecast
Forecast published? | Yes |
---|---|
Channel(s) | Current account balance (with autonomous factors and OMOs): BOJ website, 6 info vendors (Reuters, Bloomberg, Nikkei-Quick, Dow Jones, Jiji-Tsushin, Kyodo-tsushin) |
Timing | Current account balance: around 18:00 on the previous working day |
Remarks |
Dissemination of operational information: open market operations
Volume and price published? | Yes – all types |
---|---|
Channel(s) | BOJ-NET, BOJ website, 6 info vendors |
Timing | Volume: simultaneously with the offer of each operation Price results: Simultaneously with the notification of the result of each operation to counterparties |
Dissemination of operational information: standing facilities
Lending facility usage: Channel(s) | BOJ website, 6 info vendors |
---|---|
Lending facility usage: Timing | Daily at around 6 pm |
Deposit facility usage: Channel(s) | BOJ website |
Deposit facility usage: Timing | Monthly |
Other information dissemination
Type | FX intervention |
---|---|
Channel(s) | MOF website |
Timing | Monthly |