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July 14, 2017
Financial Markets Department
Bank of Japan
During fiscal 2016 (April 1, 2016 to March 31, 2017), the Bank of Japan pursued powerful monetary easing under Quantitative and Qualitative Monetary Easing (QQE) with a Negative Interest Rate, which the Bank decided to introduce in January 2016, until September 2016. Thereafter, in September 2016, the Bank decided to introduce QQE with Yield Curve Control, and further enhanced monetary easing.
Under QQE with a Negative Interest Rate, the Bank, with the aim of lowering the short end of the yield curve, divided the outstanding balance of a financial institution's current account at the Bank into three tiers, a part of which, known as the policy-rate balance, was newly applied a negative interest rate of minus 0.1 percent. In addition, the Bank conducted money market operations so that the monetary base would increase at an annual pace of about 80 trillion yen, and purchased a wide range of assets, including Japanese government bonds (JGBs), exchange-traded funds (ETFs), Japan real estate investment trusts (J-REITs), CP, and corporate bonds.
Furthermore, with a view to achieving the price stability target of 2 percent at the earliest possible time, the Bank at the Monetary Policy Meeting (MPM) held on September 20 and 21, 2016 introduced QQE with Yield Curve Control. The new policy framework consists of two major components: the first is yield curve control in which the Bank controls short-term and long-term interest rates; 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 (CPI) exceeds 2 percent and stays above that level in a stable manner.
Under yield curve control, the Bank decided to continue to apply a negative interest rate of minus 0.1 percent to the policy-rate balance as the short-term policy interest rate. Regarding the long-term interest rate, the Bank decided to purchase JGBs so that 10-year JGB yields would remain more or less at around 0 percent. In fact, through market operations utilizing various operational measures including the newly introduced fixed-rate purchase operations, 10-year JGB yields have been consistent with the guideline for market operations since September 2016.
This paper explains market operations conducted under these policies. First, it outlines the guideline for market operations and the conduct of market operations by the Bank, followed by an overview of developments in domestic money and bond markets under the conduct of these market operations. Second, it describes the conduct of the measures in market operations, followed by a discussion of changes in the frameworks related to market operations. Finally, the paper presents the Bank's actions to enhance dialogue with market participants.
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Financial Markets Department, Bank of Japan
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