Japan
Japan[JPY]
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, 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 1 | 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, inflation-overshooting commitment, forward guidance |
Overview of key features
| Key policy rate | (i) Interest rate applied to the Policy-Rate Balance in current account (ii) JGB yields |
|---|---|
| maturity (days) | (i) 1 day (ii) 10 years |
| Operating target | (i) Interest rate applied to the Policy-Rate Balance in current account, (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 2 | Purchases of JGBs and T-Bills, U.S. Dollar Funds-Supplying Operations, purchases of CP and corporate bonds, purchases of ETFs and J-REITs, etc. 3 |
| functions | Under the QQE with YCC framework, the BOJ purchases a necessary amount of JGBs and T-Bills to realize a yield curve in line with the guieline for market operations. |
| maturity (days) | Under the QQE with YCC framework, the BOJ purchases a necessary amount of JGBs and T-Bills to realize a yield curve in line with the guieline for market operations. |
| regular interval | Under the QQE with YCC framework, the BOJ purchases a necessary amount of JGBs and T-Bills to realize a yield curve in line with the guieline for market operations. |
| frequency | Under the QQE with YCC framework, the BOJ purchases a necessary amount of JGBs and T-Bills to realize a yield curve in line with the guieline for market operations. |
| Overall frequency | As needed |
| Discretion left to operational desk | Size, frequency, and timing of individual operations reflecting the market environment, choice of purchasing instruments, level of adjustment factor called "Benchmark ratio" for calculating current account balance which the interest rate of 0% is applied to (i.e. "Macro Add-on Balance"). |
| Key policy signals via | |
| announcement | √ |
| keynote tender | √ |
| standing facility | √ |
| other | √ |
Monetary policy communication
| Explicit use of forward guidance | Yes. The Bank commits itself to continue with QQE with YCC, aiming to achieve the price stability target of 2%, as long as it is necessary for maintaining that target in a stable manner. It will continue expanding the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds 2% and stays above the target in a stable manner. Regarding the policy rates, the Bank expects short- and long-term policy interest rates to remain at their present or lower levels. |
|---|---|
| Timing / media of policy announcement | Yes. Immediately after each Monetary Policy Meeting / Central bank website. |
| Policy announcement and documents | Guideline for market operations pertaining to yield curve control, guideline for asset purchases, as well as assessment of current stiation and outlook for economic activity and prices. |
| Explaining policy decisions | Press conference by the Governor |
| Dissemination of minutes (timing / media) | Yes. Three business days after the next monetary policy meeting. In addition, summary of opinions is released six business days after each monetary policy meeting. |
| Content of minutes | Summary of staff reports on economic and financial developments, summary of discussions by the policy board on economic and financial developments, summary of discussions on monetary policy for the immediate future, remarks by government representatives, monetary policy decisions. |
| Publication of forecasts 4 | Yes. Outlook for economic activity and prices. |
| Publication of projected path of policy rate 5 | No. |
Reserve requirements: ratios and size
| Main functions served | Liquidity management |
|---|---|
| Domestic currency | 0.05-1.3% |
| Foreign currency | 0.15-0.25% |
| Average | 0.81% 6 |
| Required reserves | JPY 11.37 trn 7 |
| Required reserve as % of GDP | 2.1% 8 |
| Actual reserves | JPY 425.8 trn 9 |
| Actual reserve as % of GDP | 79.0% 10 |
Main features of reserve requirements
| Averaging | Yes |
|---|---|
| Carry-over | No |
| 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 | No |
| restrictions | |
| Remuneration | No |
| average rate | 0% |
| marginal rate | 0% |
| Framework last changed | January 2016 |
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 and monthly. |
Standing facilities: lending / market ceiling
| Name | Complementary lending facility 11 |
|---|---|
| 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 12 |
|---|---|
| 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 13 | (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 Nov. 2020 |
| Maturity | 1 day – 3 months |
| 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 14 | (i) Funds – supplying operations against pooled collateral (ii) Loan support program |
|---|---|
| Form | (i) Auction lending and fixed rate lending (ii) Fixed rate lending |
| Frequency | As needed |
| Maturity | (i) Auction lending: up to 1 year, fixed rate lending: up to 10 years (ii) Up to 4 years |
| Pricing Method | (i) Auction / Fixed rate (ii) Fixed 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) Liqudity injection (ii) A temporary measure to make the effect of monetary easing permeate the entire economy, with a view to achieving price stability and thereby contributing to the sound development of the national economy |
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 15 |
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. 16 |
|---|---|
| Standing facilities: Discretion of central bank on collateral 17 | Eligibility 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 18 | 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 |
| 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 19 |
|---|---|
| Lending facility usage: Timing | Daily at around 6 pm |
| Deposit facility usage: Channel(s) | BOJ website 20 |
| Deposit facility usage: Timing | Monthly |
Other information dissemination
| Type | |
|---|---|
| Channel(s) | |
| Timing |
1 Describe as well the legal status of the mandate and involvement of government
2 RP = reversed purchase (repo, inject liquidity), RS=RRP=reversed sale (reverse repo, absorb liquidity), RT=reversed transaction (repo or reverse repo).
3 https://www.boj.or.jp/en/mopo/measures/mkt_ope/index.htm/
4 For instance, economic and inflation forecasts related to policy decision.
5 If applicable, describe the publication of any fan-charts or uncertainty bands around the forecasts/projections.
6 Weighted average of 4.2 & 4.3 as of Oct. 31 2020.
7 Daily average of Sep. 2020 reserve maintenance period.
8 Daily average of Sep. 2020 reserve maintenance period as a percent of Nominal GDP (2020-3Q).
9 Reserve balances held by institutions subject to reserve requirements as of Sep. 30 2020.
10 Reserve balances held by institutions subject to reserve requirements as of Sep. 30 2020 as a percent of Nominal GDP (2020-3Q).
11 https://www.boj.or.jp/en/mopo/measures/mkt_ope/len_a/index.htm/
12 A temporary measure.
https://www.boj.or.jp/en/mopo/measures/mkt_ope/oth_a/index.htm/
13 RP=Reversed purchase (“repo”), RS=RRP=Reversed Sales (“reverse repo”), RT=Reversed transaction (RP or RRP).
14 OT = Outright Transaction, DB = Direct Borrowing, DL = Direct Lending.
15 The Bank of Japan operates the JGB Book-Entry Transfer System as a book-entry transfer institution for the Japanese government bond.
16 The BOJ has requirements for some types of collateral such as external credit ratings and residual maturity. The BOJ established "Temporary Rules regarding the Eligibility Standards for Debt of Companies and Municipal Governments" in June 2019, and temporarily expanded the range of eligible collateral. For more information, please see https://www.boj.or.jp/en/announcements/release_2019/rel190620a.pdf.
17 Discretion of the central bank to expand collateral types, and list of additional collateral types that the central bank can take on a discretionary basis. Also, additional information such as delays required if discretionary collateral changes.
18 Discretion of the central bank to expand collateral types, and list of additional collateral types that the central bank can take on a discretionary basis. Also, additional information such as delays required if discretionary collateral changes.
19 Rounded to JPY 10 billion. Shown as an item behind the changes to the amount of current account balance.
20 Rounded to JPY 10 billion. Shown as an item behind the changes to the amount of current account balance.