The encyclopedia · Finance & Accounting · Financial decision · 2016–2024
Japan stopped targeting the money it printed and started targeting the yield it bought.
The Bank of Japan anchored 10-year yields near zero and let its bond-buying quantity float, making ultra-loose policy sustainable.
Bank of Japan
the move
By 2016 the Bank of Japan had been printing money on a fixed schedule for years, but the quantitative target had become a straitjacket: hitting it required ever more purchases, and any hint of tapering sent long yields up.
The bank's response was to move the goal from quantity to price. It kept the negative short rate and announced a target of around zero percent for the 10-year government bond yield, buying whatever was needed to defend that level, and abandoning the promised duration of purchases.
Targeting the price meant the central bank no longer had to announce a huge annual number; it only had to defend one price, which made the program look like a standard interest-rate policy and gave the bank room to adjust the amount of buying it did.
why it works
- A fixed purchase quantity is hard to sustain or taper
- An anchoring operation can buy a fixed or unlimited amount
- Controlling one long rate flattens and steers the whole curve
- Price targeting made easing look like orthodox rate policy
what transfers
If a rigid quantity target is unsustainable, switch to the price target it was meant to deliver; an anchored yield turns a brittle buying program into a self-correcting one.
what came after
Yield-curve control held the 10-year bond near zero for years and kept government borrowing costs minimal while the pace of purchases fell. It became a global reference point for what a central bank can do once front-end rates are at zero, and it was only unwound in 2024 as inflation returned.
references
- Factbox - BOJ's overhaul of its monetary policy framework
- Bank of Japan unveils new policy framework that targets long-term rates
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