Kazuo Ueda: On the recent changes in the Bank of Japan's Monetary Policy Framework

Remarks by Mr Kazuo Ueda, Governor of the Bank of Japan, at the Peterson Institute for International Economics, Washington DC, 19 April 2024.

The views expressed in this speech are those of the speaker and not the view of the BIS.

In the March monetary policy meeting, taking into consideration the improving inflation outlook, the Bank of Japan (BOJ) opted to discontinue the policy framework known as Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control (YCC), which had been in effect since 2013 with revisions made after 2016. In its place, we introduced a new framework. First, I will give a brief outline of the changes made, followed by an explanation of the background behind these adjustments.

Regarding interest rates, under YCC, we controlled both short- and long-term interest rates. The short-term policy rate -- the interest rate the BOJ pays on the policy component of excess reserves -- stood at -0.1% as of early March this year. Meanwhile, the target for the 10-year JGB rate was set at around 0%, with a permitted fluctuation range around the target capped at 1.0%.

On March 19, we decided to establish a new short-term interest rate target, now defined as the uncollateralized overnight call rate, set between 0 and 0.1%. The target for the 10-year JGB rate has been removed.

As for asset purchases, we will maintain our acquisition of JGBs at a pace similar to before, thereby keeping the amount of JGBs held by the BOJ relatively stable for the time being. However, we remain prepared to respond swiftly to any rapid increase in long-term interest rates by increasing our purchases of JGBs. Other than these, the determination of long-term interest rates is left to the market.

We have ended the acquisition of equity-linked ETFs and J-REITs, gradually reducing purchases of CP and corporate bonds to zero within approximately one year.

We will begin to reduce JGB purchases at an unspecified point in the future. However, the extent of this reduction remains undetermined. We will need to take time to consider what to do with the ETFs we hold.

Given these changes, the primary tool of our monetary policy has become control of the short-term interest rate, with the policy target continuing to be the attainment of 2% inflation in a sustainable manner. Based on our current economic and inflation outlook, we anticipate accommodative financial conditions to prevail for the time being.