The Bank of Japan’s monetary policy (part one)

The Bank of Japan, as the central bank of Japan, decides and implements monetary policy with the aim of maintaining price stability. The inflation target is equal to 2.0%

Like any other central bank, the BOJ believes that price stability is important because it provides the foundation for Japanese economic wellness.

In implementing its monetary policy, the BOJ influences the formation of interest rates for the purpose of currency (the Japanese yen) and monetary control, by means of its operational instruments, such as money market operations.

The basic stance for monetary policy is decided by the Policy Board at Monetary Policy Meetings (MPMs). As explained on the BOJ’s website, “at MPMs, the Policy Board discusses the economic and financial situation, decides the guideline for money 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 money market operations and chooses types of operational instruments, and provides and absorbs funds in the market.”

Over the last years, Japan entered a particular economic situation, characterized by secular stagnation and absence of inflation. The BOJ reacted by lowering interest rates to negative level (the current level is -0,10%) and through a specific asset purchase programme but, despite all these efforts, so far, these stimuli has not achieved the desired goals.

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