1 March 19, 2024 Bank of Japan Changes in the Monetary Policy

March 19, 2024

Bank of Japan

Changes in the Monetary Policy Framework

1. At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan assessed

the virtuous cycle between wages and prices, and judged it came in sight that the price stability

target of 2 percent would be achieved in a sustainable and stable manner toward the end of the

projection period of the January 2024 Outlook Report (Outlook for Economic Activity and

Prices). The Bank considers that the policy framework of Quantitative and Qualitative

Monetary Easing (QQE) with Yield Curve Control and the negative interest rate policy to date

have fulfilled their roles. With the price stability target of 2 percent, it will conduct monetary

policy as appropriate, guiding the short-term interest rate as a primary policy tool, in response

to developments in economic activity and prices as well as financial conditions from the

perspective of sustainable and stable achievement of the target.

Given the current outlook for

economic activity and prices, the Bank anticipates that accommodative financial conditions

will be maintained for the time being.

On this basis, the Bank made the following decisions, including that on the guideline for market

operations.

(1) Guideline for market operations (a 7-2 majority vote)

[Note 1]

The Bank decided to set the following guideline for market operations for the intermeeting

period.

The Bank will encourage the uncollateralized overnight call rate to remain at around 0 to

0.1 percent.

The Bank judged that the inflation-overshooting commitment regarding the monetary base had fulfilled the

conditions for its achievement.

In order to achieve this guideline, the Bank will apply an interest rate of 0.1 percent to current account

balances held by financial institutions at the Bank (excluding required reserve balances). The new guideline

for market operations and the new interest rate on the current account balances will be effective from March

21, 2024.

(2) Purchase of Japanese government bonds (JGBs) (an 8-1 majority vote)

[Note 2]

The Bank will continue its JGB purchases with broadly the same amount as before.

case of a rapid rise in long-term interest rates, it will make nimble responses by, for example,

increasing the amount of JGB purchases and conducting fixed-rate purchase operations of

JGBs -- both of which can be done so regardless of the monthly schedule of JGB purchases

-- and the Funds-Supplying Operations against Pooled Collateral.

(3) Asset purchases other than JGB purchases (a unanimous vote)

a) The Bank will discontinue purchases of exchange-traded funds (ETFs) and Japan real

estate investment trusts (J-REITs).

b) The Bank will gradually reduce the amount of purchases of CP and corporate bonds

and will discontinue the purchases in about one year.

(4) Treatment of new loan disbursements under the Fund-Provisioning Measure to Stimulate

Bank Lending etc. (a unanimous vote)

The Bank will provide loans under the Fund-Provisioning Measure to Stimulate Bank

Lending, the Funds-Supplying Operation to Support Financial Institutions in Disaster

Areas, and the Funds-Supplying Operations to Support Financing for Climate Change

Responses with an interest rate of 0.1 percent and a duration of one year. With regard to

the Fund-Provisioning Measure to Stimulate Bank Lending, the maximum amount of funds

that each eligible counterparty can borrow will be equivalent to the net increase in its

amount outstanding of loans.

2. Japan's economy has recovered moderately, although some weakness has been seen in part (see

Attachment). Looking at the background conditions of wage developments, corporate profits

have continued to improve and labor market conditions have been tight. In this situation, as

indicated by the results of this year's annual spring labor-management wage negotiations to

date, it is highly likely that wages will continue to increase steadily this year, following the

firm wage increase last year. Moreover, anecdotal information from firms -- which is gathered

through the Bank's Head Office and branches -- suggests that a wide range of firms have

maintained their stance of raising wages. On the price front, while the effects of a pass-through

The amount of JGB purchases is currently about 6 trillion yen per month. The Bank will continue to

announce the planned amount of JGB purchases with a range and will conduct the purchases while taking

account of factors such as market developments and supply and demand conditions for JGBs.

to consumer prices of cost increases led by the past rise in import prices have waned, services

prices have continued to increase moderately, partly due to the moderate wage increases seen

thus far. As these recent data and anecdotal information have gradually shown that the virtuous

cycle between wages and prices has become more solid, the Bank judged it came in sight that

the price stability target would be achieved in a sustainable and stable manner toward the end

of the projection period of the January 2024 Outlook Report.

[Note 1]

Voting for the action: UEDA Kazuo, HIMINO Ryozo, UCHIDA Shinichi, ADACHI Seiji, NAKAGAWA

Junko, TAKATA Hajime, and TAMURA Naoki. Voting against the action: NAKAMURA Toyoaki and

NOGUCHI Asahi. While Nakamura Toyoaki was in favor of discontinuing purchases of ETFs and

other assets, which were mainly related to large firms, he dissented, considering that the Bank should

continue with the negative interest rate policy until it confirmed that the capacity of small and medium-

sized firms -- whose recovery in business performance was delayed -- to raise wages would likely

increase. Noguchi Asahi dissented, considering that terminating the yield curve control framework and

the negative interest rate policy simultaneously should be avoided from the perspective that the Bank

should more carefully assess whether the virtuous cycle between wages and prices had become more

solid and avoid the risk of bringing about discontinuous changes in financial conditions.

[Note 2]

Voting for the action: UEDA Kazuo, HIMINO Ryozo, UCHIDA Shinichi, ADACHI Seiji, NOGUCHI

Asahi, NAKAGAWA Junko, TAKATA Hajime, and TAMURA Naoki. Voting against the action:

NAKAMURA Toyoaki. Nakamura Toyoaki dissented for the same reason as he opposed the proposal

regarding the guideline for market operations.

Attachment

Economic Activity and Prices in Japan: Current Situation and Outlook

1. Japan's economy has recovered moderately, although some weakness has been seen in part.

The pace of recovery in overseas economies has slowed. Although exports have been affected

by the developments in overseas economies, they have been more or less flat. Industrial

production has been more or less flat as a trend, but it has declined recently, partly due to the

effects of a suspension of production and shipment at some automakers. With corporate profits

improving, business fixed investment has been on a moderate increasing trend. The

employment and income situation has improved moderately. Private consumption has been

resilient, although the impact of price rises and developments such as a decline in automobile

sales due to the suspension of shipment at some automakers have been observed. Housing

investment has been relatively weak. Public investment has been more or less flat. Financial

conditions have been accommodative. On the price front, the negative contribution of energy

prices to the year-on-year rate of increase in the consumer price index (CPI, all items less fresh

food) has been relatively large, partly due to the government's economic measures. That said,

the rate of increase in the CPI has been at around 2 percent recently, mainly on the back of the

fact that, despite waning, the effects of a pass-through to consumer prices of cost increases led

by the past rise in import prices have remained, and services prices have increased moderately.

Inflation expectations have risen moderately.

2. Japan's economy is likely to continue recovering moderately for the time being, supported by

factors such as the materialization of pent-up demand, although it is expected to be under

downward pressure stemming from a slowdown in the pace of recovery in overseas economies.

Thereafter, as a virtuous cycle from income to spending gradually intensifies, Japan's economy

is projected to continue growing at a pace above its potential growth rate. The year-on-year

rate of increase in the CPI (all items less fresh food) is likely to be above 2 percent through

fiscal 2024, due to factors such as the effects, albeit waning, of the pass-through to consumer

prices of cost increases led by the past rise in import prices and a waning of the effects of the

government's economic measures pushing down CPI inflation of the previous year. Thereafter,

the rate of increase is projected to decelerate owing to dissipation of these factors. Meanwhile,

underlying CPI inflation is likely to increase gradually toward achieving the price stability

target, as the output gap turns positive and as medium- to long-term inflation expectations and

wage growth rise.

3. Concerning risks to the outlook, there are extremely high uncertainties surrounding Japan's

economic activity and prices, including developments in overseas economic activity and prices,

developments in commodity prices, and domestic firms' wage- and price-setting behavior.

Under these circumstances, it is necessary to pay due attention to developments in financial

and foreign exchange markets and their impact on Japan's economic activity and prices.

Reference

Meeting hours:

Monday, March 18: 14:00-16:22

Tuesday, March 19: 9:00-12:28

Policy Board members present:

UEDA Kazuo, Chairman (Governor)

HIMINO Ryozo (Deputy Governor)

UCHIDA Shinichi (Deputy Governor)

ADACHI Seiji

NAKAMURA Toyoaki

NOGUCHI Asahi

NAKAGAWA Junko

TAKATA Hajime

TAMURA Naoki

[Others present]

March 18

From the Ministry of Finance:

SAKAMOTO Motoru, Deputy Vice-Minister for Policy Planning and Coordination

(14:00-16:22)

From the Cabinet Office:

INOUE Hiroyuki, Vice-Minister for Policy Coordination (14:00-16:22)

March 19

From the Ministry of Finance:

AKAZAWA Ryosei, State Minister of Finance (9:00-12:08, 12:17-12:28)

From the Cabinet Office:

IBAYASHI Tatsunori, State Minister of Cabinet Office (9:00-12:08, 12:17-12:28)

Release dates and times:

Changes in the Monetary Policy Framework -- Tuesday, March 19 at 12:35

Summary of Opinions -- Thursday, March 28 at 8:50

Minutes of the Monetary Policy Meeting -- Thursday, May 2 at 8:50