Prepared by Martin Mühleisen (ext. 38686).
The BOJ interpreted the decline in nominal price indices as a side-effect of significant structural change in the economy (“good” deflation), rather than a lack of aggregate demand (see On Price Stability, a BOJ report published in October 2000).
The new facility became operative on March 16, 2001.
To streamline its money market operations, the BOJ has since abolished the discounting of commercial bills, the Import Bills Refinancing Facility, and the Lending Facility at a Non-basic Loan Rate. The main remaining function of the basic loan rate will thus be to reduce interest rate volatility by putting an effective ceiling on the overnight call rate.
Real rates were sharply lower around the turn of the year (see middle panel of Figure III.3), but this remained temporary as a surge in energy prices subsequently reversed itself.
The liquidity injections at the end of the year were conducted almost exclusively through repo operations. By comparison, the much larger operations needed to address Y2K concerns—involving close to ¥30 trillion in liquidity—consisted mostly of so-called “dual” operations (in which the BOJ purchased government securities spanning the year-end and withdrew overnight funds through the sale of BOJ bills). These developments are mirrored in the size of the BOJ’s balance sheet.
Reflecting inter alia problems in the banking sector, money multipliers have generally declined during the 1990s.
The slow growth in importance of “new” intermediaries is confirmed by the recently released flow of funds statistics for FY1999 (see BOJ Quarterly Bulletin, February 2001).
For example, with the maturation of high-yielding teigaku deposits, the share of postal savings deposits in broadly-defined liquidity has fallen from 20¾ percent in early 2000 to 19 percent in April 2001.