19 March 2001, 12:44 ENGLISH TEXT OF BOJ POLICY CHANGE ANNOUNCEMENT
SINGAPORE (MktNews) - The following is the complete English text of
the Bank of Japan's announcement of its monetary policy regime change
Monday, provided by the Bank of Japan:
1. Japan's economic recovery has recently come to a pause after it
slowed in late 2000 under the influence of a sharp downturn of the
global economy. Prices have been showing weak developments and there is
concern about increase in downward pressures on prices stemming from
weak demand.
2. In retrospect, both monetary and fiscal policies have taken
considerably strong actions during the past decade in Japan. Whereas
fiscal policy has repeatedly implemented expansionary measures, the Bank
of Japan has adopted a policy of maintaining interest rates at levels
unprecedentedly low during the history of central banking at home and
abroad, thereby providing ample liquidity. All this notwithstanding,
Japan's economy has failed to return to a sustainable growth path, and
is now faced again with a threat of deterioration.
3. In light of this, the Bank has come to a conclusion that the
economic conditions warrant monetary easing as drastic as is unlikely to
be taken under ordinary circumstances. Accordingly, the Bank decided at
its Monetary Policy Meeting of today to take the following policy
actions.
a) Change in the operating target for money market operations. The
main operating target for money market operations be changed from the
current uncollateralized overnight call rate to the outstanding balance
of the current accounts at the Bank of Japan. Under the new procedures,
the Bank provides ample liquidity, and the uncollateralized overnight
call rate will be determined in the market at a certain level below the
ceiling set by the Lombard-type lending facility.
b) CPI guideline for the duration of the new procedures The new
procedures for money market operations continue to be in place until the
consumer price index (excluding perishables, on a nationwide statistics)
registers stably a zero percent or an increase year on year.
c) Increase in the current-account balance at the Bank of Japan and
declines in interest rates. For the time being, the balance outstanding
at the Bank's current accounts be increased to around 5 trillion yen, or
1 trillion yen increase from the average outstanding of 4 trillion yen
in February 2001 (see Attachment). As a consequence, it is anticipated
that the uncollateralized overnight call rate will significantly decline
from the current target level of 0.15 percent and stay close to zero
percent under normal circumstances.
d) Increase in outright purchase of long-term government bonds. The
Bank will increase the amount of its outright purchase of long-term
government bonds from the current 400 billion yen per month, in case it
considers that increase to be necessary for providing liquidity
smoothly. The outright purchase is, on the other hand, subject to the
limitation that the outstanding amount of long-term government bonds
effectively held by the Bank, i.e., after taking account of the
government bond sales under gensaki repurchase agreements, be kept below
the outstanding balance of banknotes issued.
4. The Bank of Japan has decided to implement these policy measures
with firm determination with a view to preventing prices from declining
continuously as well as preparing a basis for sustainable economic
growth.
5. In order to make this monetary easing fully effective in
restoring Japan's economy on a sustainable growth path, progress in
structural reforms with respect to the financial system, e.g.,
resolution of the non-performing asset problem, as well as in the area
of economy and industry is essential. Structural reform may be
accompanied by painful adjustments. Without such adjustments, however,
neither improvement in productivity nor sustainable economic growth can
be obtained. The Bank of Japan strongly hopes that decisive actions be
taken to address fundamental problems both with a clear support of the
nation for structural reform and under a strong leadership of the
government of Japan.
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