Change in the Guideline for Money Market Operations

October 30, 2002
Bank of Japan

(For immediate release)

At the Monetary Policy Meeting (MPM) held today, the Bank of Japan decided to change the guideline for money market operations and to take measures to strengthen its capacity to provide liquidity through such operations:
1. 1) Raising the operating target for money market operations
  The Bank will conduct money market operations aiming at the outstanding balance of current accounts held at the Bank at around 15 to 20 trillion yen (see attachment).
2. 2) Increasing the outright purchase of long-term government bonds
  The Bank will increase its outright purchase of long-term government bonds from the current one trillion yen per month to 1. 2 trillion yen per month.
3. 3) Extending maturities for bills purchased
  The Bank will extend maturities for bills purchased in bill purchasing operations from six months or less to a year or less.
Japan's economy has stopped deteriorating but has not yet shown clear signs of recovery. Against this backdrop, prospects for the economy have been facing increasing uncertainties, including global economic developments and the impact of likely acceleration in the pace of dealing with the non-performing loan (NPL) problem. In addition, stock prices have been volatile both in domestic and overseas markets.
In financial markets, ample liquidity provided by the Bank continues to restrain financial institutions' concern over liquidity financing. However, against the background of the above mentioned stock price developments as well as uncertainties regarding the resolution of the NPL problem, the short-term money market is experiencing some instability as evidenced by a modest rise in interest rates. In addition, the lending attitude of financial institutions could tighten in the coming period.
Based on the above assessment regarding the current economic and financial situation as well as its future prospects, the Bank thought it appropriate to take best measures to maintain the smooth functioning and stability of financial markets, thereby strengthening support for economic recovery from the monetary side.
In order to ensure the abundant liquidity provision by the Bank leading to the revitalization of the economy, improvement in credit allocation function of capital markets is important in addition to the strengthening of the financial intermediary function of banks. In this regard, the Bank will closely monitor the impact of expected government measures to accelerate the resolution of the NPL problem on corporate financing and explore possible measures to secure the smooth working of corporate financing.
The Bank will continue to make every effort as a central bank, including measures to secure financial system stability, in order to establish a basis for the stable and sustainable growth of Japan's economy and, thereby, prevent a continuous decline in prices.

Attachment

October 30, 2002
Bank of Japan

At the Monetary Policy Meeting held today, the Bank of Japan decided, by unanimous vote, to set the following guideline for money market operations for the inter-meeting period:The Bank of Japan will conduct money market operations, aiming at the outstanding balance of current accounts held at the Bank at around 15 to 20 trillion yen.

Should there be a risk of financial market instability, such as a surge in liquidity demand, the Bank will provide more liquidity irrespective of the above target.

(Reference)

Meeting hours :
October 30th : 9:00-14:33

Members present :
Masaru Hayami ( Governor )
Sakuya Fujiwara ( Deputy Governor )
Yutaka Yamaguchi ( Deputy Governor )
Kazuo Ueda
Teizo Taya
Miyako Suda
Shin Nakahara
Hidehiko Haru
Toshikatsu Fukuma

(Others present)

From Ministry of Finance :
Takayoshi Taniguchi, Senior Vice Minister of Finance
(9:00-13:32, 13:34-14:33)

From Cabinet Office :
Yuzo Kobayashi, Vice-Minister for Economic and Fiscal Policy
(9:00-13:32, 13:34-14:33)

Release of minutes :
2:00 p.m. on Friday, December 20