Sayuri Shirai: Japan's monetary policy in a challenging environment
Speeches by Ms Sayuri Shirai, Member of the Policy Board of the Bank of Japan, at the
Bank of Italy and at the Eurasia Business and Economics Society Conference, Rome,
11-12 January 2013.
* * *
I. Introduction
It is indeed a great honor to have this opportunity to address you today. In my presentation, I
would like to focus on Japan's macroeconomic performance, monetary policy, and the
environment surrounding the conduct of monetary policy. Some of the issues I will raise
today - such as population aging and associated macroeconomic and structural issues - are
traditionally regarded as long-term issues for central banks, and they thus tend to be treated
as issues beyond the framework of monetary policy. Nonetheless, a number of European
countries, such as Italy and Germany, are currently facing a rapidly aging population in a
similar manner to Japan. Therefore, I believe that those issues will be actively debated in
Europe in the near future as factors affecting the conduct of monetary policy. For this reason,
deepening the understanding of Japan's experience may provide useful inputs, especially for
countries whose economies have entered a mature stage. Cultivating a more profound
insight into Japan's experience may also promote innovative ways of thinking about the
conduct of monetary policy.
Let me briefly outline the content of this presentation. The main purpose of my talk is to
describe the accommodative monetary policy that the Bank of Japan (hereafter the Bank)
has been conducting for almost all of the past two decades since its first cut in the policy rate
in 1991 in response to the bubble burst in real estate and stock prices. Owing to the limited
nonstandard
time available, I would like to shed light on two types of monetary easing
adopted by the Bank under the zero lower bound on nominal interest rates: (1) the first round
of monetary easing - the so-called quantitative easing (QE) during 2001-06; and (2) the
second round of monetary easing - the so-called comprehensive monetary easing (CME)
from 2010 until the present. The final part of my presentation will focus on structural issues
and associated macroeconomic performance. The issue of the effectiveness of the conduct
of monetary policy in the current challenging environment will also be explored. I am very
much looking forward to active discussions with you after my presentation.
II. First round of monetary easing under the quantitative easing (QE) policy
(2001-06)
Let me start my presentation by providing you with a brief summary of the economic
performance since the 2000s and the experience under QE of 2001-06.
A. Framework for the QE policy
Before falling into a prolonged mild deflation phase, Japan experienced the collapse of the
bubble in real estate and stock prices in the early 1990s, and the subsequent financial crisis
in the second half of the 1990s. Over the same period, Japan suffered from a prolonged
recession and negative output gap notwithstanding several short-lived recovery phases
(Chart 1). The growth rate of the headline consumer price index (CPI) and core CPI (defined
as all items except fresh food) gradually dropped and shifted to a continuous modest decline
from 1998 (Chart 2). Moreover, the economy was adversely affected by the bursting of the
U.S. IT bubble in 2000. Exports and production dropped sharply in early 2001, while
CPIbased price changes remained in negative territory.
Under this environment, the Bank adopted a new monetary easing framework - the so-called
QE policy - in March 2001 with a view to stemming the continuous price decline and setting
the basis for sustainable economic growth.1 This unique policy was a nonstandard monetary
policy since it was introduced in the presence of a virtually zero uncollateralized overnight
call rate or very short-term money market interest rate.2 It consisted of the following three
main elements.
First, the main operating target was shifted from the policy rate (uncollateralized overnight
current account balance at the Bank interest rate
call rate) to the - a transformation from
targeting to reserve targeting. The target balance was then increased gradually by expanding
excess reserves (Chart 3). To be precise, the target amount was raised nine times from the
initial 5 trillion yen (which is higher than the required reserve level of 4 trillion yen) to around
30-35 trillion yen in January 2004 in response to the deteriorating economy. The same target
amount was then maintained until the end of the QE policy. The attempt was made to
achieve this reserve target mainly through money market operations with various maturities
of one year or less.
Theoretically, this measure, which led to an expansion of the Bank's balance sheet (or the
monetary base), was supposed to affect the financial and capital markets through the
following: (1) the portfolio rebalance effect (lowering the risk premiums of financial assets
that are imperfect substitutes for the monetary base); and (2) the signaling effect (lowering
the expectations for the future path of short-term interest rates), as indicated in Chart 4. The
portfolio rebalance effect refers to the channel through which expansion of the Bank's
balance sheet helps reduce the risk premiums of riskier assets, thereby inducing financial
institutions and investors to invest more actively in those assets. This action may raise their
prices, thus indirectly stimulating business fixed investment and consumption - and hence
general prices. The signaling effect refers to the situation in which a central bank sends out a
signal to the market through an expansion of the balance sheet, which leads to expectations
that the future path of short-term interest rates will remain low for a longer period. Since
central banks can control the future path of short-term nominal interest rates, the expansion
of the balance sheet signals the Bank's future monetary policy conduct. Such expectations
then affect various expectations for longer-term interest rates and the yields of other financial
assets in the financial markets.
Second, the Bank made a clear commitment to maintaining this policy until the condition of
the core CPI registering "stably 0 percent or a year-on-year increase" was met.3 This
innovative monetary policy tool is nowadays often referred to as "forward guidance."
Theoretically, this policy is supposed to lower future short-term interest rates through the
signaling effect - by promoting market expectations that the virtually zero interest rate will be
maintained for some time in the future even after economic conditions improve.4
1
Previously, the uncollateralized overnight call rate (targeted policy rate) was lowered to 0 percent in February
1999 to cope with deteriorating economic conditions and deflation risk. The zero interest rate policy was then
abandoned, and the policy rate was raised to 0.25 percent in August 2000 with a view of reduced deflationary
pressures driven by weak demand. In February 2001, the increase in the policy rate ceased, and it was
lowered to 0.15 percent.
2
Under the QE policy, the uncollateralized overnight call rate stayed at around 0 percent owing to the ample
liquidity provision. To be precise, the interest rate under the QE policy declined to 0.001 percent - a level even
below the 0.02-0.03 percent that prevailed during the zero interest rate policy.
3
The forward guidance was clarified further in October 2003 by introducing two exit conditions: (1) the most
recently published core CPI registers 0 percent or above and such a tendency is confirmed for over a few
months; and (2) the projected core CPI does not register below 0 percent. These conditions were regarded as
necessary so that there may be cases that the Bank will judge it appropriate to continue with QE even if these
two conditions are fulfilled.
4
See Eggertsson, Gauti B., and Michael Woodford, "The Zero Bound on Interest Rates and Optimal Monetary
Policy," Brookings Papers on Economic Activity, 1, pp. 139-211, 2003; and Reifschneider, David, and John
C. Williams, "Three Lessons for Monetary Policy in a Low-Inflation Era," Journal of Money, Credit and
Banking, 32 (4) Part 2, pp. 936-66, 2000.
Third, it was decided to increase the outright purchase of (long-term) Japanese government
bonds (JGBs) if deemed necessary to facilitate meeting the targeted current account balance
at the Bank. Indeed, the amount of JGBs purchased rose steadily. Theoretically, this
measure aims at altering the composition of the Bank's balance sheet without changing its
size and is sometimes referred to as a "credit easing" policy. Like measures to expand the
current account balance at the Bank, the expected effects could be decomposed into the
portfolio rebalance and signaling effects. In practice, though the increase in the current
account balance at the Bank was mainly conducted through relatively short-term market
operations, this measure was regarded as an additional tool to ensure that the targeted
balance would be met.
B. Economic recovery setting the stage for exit from the QE policy
Over the same period of 2001-06, expansionary economies overseas contributed to an
increase in Japan's export growth. Thus, Japan's economy was finally able to enter a
recovery phase after the trough in January 2002. Corporate profits grew during this period
despite the rise in imported crude oil prices and other material prices. Reflecting growing
production capacity constraints caused by active production activities, business fixed
investment - especially in the export manufacturing sector - recorded high growth; however,
the level of investment remained below the scale of cash flow. Household income rose
moderately owing to an increase in employment, but also partly thanks to a moderate
perworker nominal wage increase (driven mainly by rising working hours), an increase in
dividend income, and the rise in stock prices, thereby supporting consumption activities.
The economy was recovering steadily after the beginning of 2002, and the recovery trend
was getting stronger (Chart 1). It seemed that the economic growth would continue for the
foreseeable future. It was clear that the main engine for the growth was exports and
associated domestic business fixed investment activities, which had been supported by
favorable worldwide economic growth and the depreciation of the yen. The yen's
depreciation, especially vis-à-vis the U.S. dollar and the euro, was promoted mainly by the
growing yen carry trade (selling yen and buying foreign currencies) in the face of interest rate
differentials and the risk-taking behavior of investors (Chart 5). This view is consistent with
the fact that both large and small and medium-sized firms in the manufacturing sector
indicated more favorable sentiment over business conditions than their counterparts in the
nonmanufacturing sector.
Regarding price developments, the core CPI - having moved into negative territory since the
late 1990s and remained more or less in a mild deflation phase - finally turned positive
toward late 2005 (Chart 2). This was followed by larger increases after the beginning of
2006.5 Several firm-based surveys indicated that companies faced very strong capacity
constraints in terms of capital stock and employment, which suggested that the negative
output gap had mostly been eliminated (Chart 1). Since the economy was expected to
expand at a pace above its potential, it was thought that the output gap would likely become
positive and then widen moderately. One concern was that unit labor costs (ULCs) continued
to decline since increases in hourly productivity had been large. However, wages began to
increase in 2005 in the presence of a tighter supply and demand balance of labor over a
relatively wide range of industries, while the rate of productivity increase was expected to
slow down in the prolonged stage of economic recovery. Thus, it was projected that in the
near future, ULCs would stop declining and start increasing moderately. Moreover, various
surveys indicated that firms and households were adjusting inflation expectations upward for
both the short term and the medium to long term.
Like other advanced countries, Japan had been witnessing the phenomenon of the rate of
increase in the CPI becoming less sensitive to changes in the output gap over recent years -
the so-called flattened Phillips Curve. Nonetheless, the Bank assessed that the CPI inflation
was likely to rise gradually based on the already-mentioned considerations: (1) an expected
further improvement in the output gap; (2) expected tighter labor market conditions, partly as
a result of growing economic activity; and (3) rising inflation expectations of firms and
households. The increase in international commodity prices and the yen's depreciation also
contributed to the rising inflation prospects.
Based on these observations, it was expected that the uptrend in the CPI would probably be
achieved, even though those movements would be partially offset by downward pressures
stemming from intense competition among domestic firms, intensified cross-border
competition under deepened globalization, and advances in information and
telecommunication technology. The growth rate of the core CPI was thus estimated to be
within the range of 0-1 percent in fiscal 2006 and would approach the level of slightly below
1 percent in fiscal 2007.
In March 2006, the Bank thus concluded that it was time to exit the QE policy since the
conditions laid out in the commitment had been fulfilled.6 Therefore, the decision was made
to reintroduce the standard uncollateralized overnight call rate as an operating target for
money market operations instead of the outstanding balance of current accounts at the Bank.
Also, the new target for the uncollateralized overnight call rate was set at effectively
0 percent.
At the same time, the Bank adopted a new framework for the conduct of monetary policy by
setting the "understanding of medium- to long-term price stability." This is the level of the CPI
inflation rate currently recognized as price stability by each member of the Policy Board of
the Bank. An agreement was made among board members that a range of such an inflation
rate would remain approximately between 0 and 2 percent with the median of 1 percent. It
was also agreed that the rate would be reviewed annually. You may wonder why the range of
inflation was lower than that of many other advanced countries. This is because the Bank
found it important to take into account past price movements: namely, the average rate of
inflation over the previous few decades had been lower than that of major overseas
economies and had been low even during the bubble period of the 1980s. In addition, Japan
had experienced a prolonged period of lower rates of inflation since the 1990s. Under such a
low inflation environment, it was regarded as likely that the rate of inflation at which
households and firms perceived price stability would also be low.
After March 2006, the level of interest rates turned positive as a result of the Bank's decision
to raise the policy rate twice in light of favorable developments in economic activity and
prices: from 0 percent to 0.25 percent in July 2006, and further to 0.5 percent in February
2007. This level of the policy rate was maintained until October 2008.
C. Was the QE policy effective?
This unique monetary policy contributed to rapid expansion of the monetary base, both in
terms of the absolute amount and as a percentage of GDP. After the size of the monetary
base was expanded from 38 trillion yen in 1990 (9 percent of GDP) to 65 trillion yen
(13 percent of GDP) just prior to initiation of the QE policy, it further swelled to 110 trillion yen
(22 percent of GDP) by March 2006. The scale of monetary accommodation contrasted with
that in the United States and the euro area at that time (Chart 6).
Empirically, the effects of the QE policy can be examined by decomposing the transmission
mechanism into the following two stages: (1) the transmission mechanism from monetary
easing to financial and capital markets (first stage); and (2) the transmission mechanism from
the first stage to the real economy and prices through financial and capital markets (second
stage). This is conceptualized in Chart 7. Ugai (2006)7 summarizes existing empirical
analyses of the QE policy related to the first stage by focusing on the aforementioned three
features of that policy: (a) the effect of expanding the size of the Bank's balance sheet (or the
monetary base) by increasing the current account balance at the Bank; (b) the effect of the
forward guidance policy on the expected future path of short-term interest rates; and (c) the
effect of altering the composition of the Bank's balance sheet by increasing the purchases of
JGBs (Chart 4).
To summarize the research results, the effect of the QE policy was traced mainly through the
forward guidance policy by pushing the yield curve downward (namely, through the signaling
effect). The portfolio rebalance effect meanwhile had mixed results, depending on the types
of assets. In particular, the purchase of JGBs had little impact on lowering risk premiums.
However, some research analyses demonstrated the presence of the portfolio rebalance
effect through the channel of cross-border capital flows. Namely, the QE policy induced
capital outflows, whose funds were then reinvested in Japanese stocks by foreign hedge
funds, and they contributed to raising those stock prices.
With regard to the second stage, a small number of empirical studies have examined the
impact of QE on macroeconomic performance. Some demonstrated that an expansion of the
Bank's balance sheet had a limited impact on aggregate demand and prices; other studies
showed that there was a statistically significant positive impact of QE on industrial
production, but no statistically significant impact was found on the core CPI.8
The overall assessment of the QE policy was made by the then Bank Governor Fukui in
2006.9 First, the policy stabilized the financial system through the ample liquidity provision at
a time when there were strong concerns over its stability. The ample liquidity provided by the
Bank met rising liquidity demand by financial institutions, and it thus successfully avoided a
repetition of the large-scale credit crunch that occurred during the 1997-98 financial crises.
Second, the policy created and maintained a very accommodative environment that
supported the recovery of Japanese firms through the commitment to continue zero interest
rates. In particular, bank lending rates and interest rates on corporate bonds continued to
decline as a result of the flattening of the yield curve as well as the gradual decrease in credit
risk premiums. Meanwhile, the Bank stressed that a side effect of the QE policy was
shrinkage of the interbank markets owing to fewer arbitrage transactions and reduced
demand for fund-raising from the market. This led to a decline in credit lines among financial
institutions and a cut in resources allocated to the interbank market business within financial
institutions. The function of the interbank market appears to have been impaired.
Moreover, it was clear that such an accommodative monetary policy could not promote
active lending activities by banks (Chart 8). This was mainly attributable to the size of
negative shocks triggered by the bursting of the bubble and their subsequent impact on the
financial system. Policies for dealing with the deteriorating balance sheets of financial
institutions caused by ample nonperforming loans were very slow; this was partly because
there was hope for a reversal of the real estate and stock price decline, which would remove
the possibility of a financial crisis or stagnation of the economy. Even at a later stage, when
experts finally agreed on the need to provide public support for financial institutions,
measures to inject public funds into those institutions met with public opposition (Shirakawa
2012).10 At the same time, the drag on aggregate demand was severe owing to the balance
sheet problems of firms and three types of excesses - employment, investment, and debt.
Nonetheless, it was pointed out that the liquidity provided by the Bank exerted a small, but
still positive, effect on banks' lending activities (Bowman et al. 2011).11
III. Second round of monetary easing under the comprehensive monetary easing
(CME) policy (2010 to the present)
That was a brief summary of how the Bank coped with difficult economic situations in around
the first half of the 2000s. The next issue is the Bank's most recent policy framework - the
CME policy that has been adopted since October 2010. But before addressing that issue, I
would like to talk about how the Bank reacted to the global recession triggered by the
Lehman shock in September 2008 prior to the introduction of the CME policy.
A. Quick ending of the normalization period of monetary policy
Global economic conditions deteriorated sharply after autumn 2008 with the intensification of
turmoil in the U.S. and European financial systems as well as in global financial markets.
Exports decreased significantly owing to a sharp downturn in overseas economies. Business
fixed investment also declined substantially, which reflected the deterioration in corporate
profits and financial conditions. Moreover, the yen began to appreciate against the U.S.
dollar in summer 2007 with the weakening of the global risk appetite and the unwinding of
the yen carry trade (Chart 5). As a result, the nominal exchange rate of the yen shifted
drastically. In the household sector, private consumption weakened against a backdrop of
deterioration in consumer sentiment and in the employment and income situation. Therefore,
it seemed likely that the economic growth rate for 2008 would deteriorate. Meanwhile, the
headline and core CPIs rapidly increased in summer 2008, which was due mainly to the
surge in commodity prices. Thereafter, the effects of commodity prices gradually waned, and
the headline and core CPIs started to moderate by late 2008.
Against this background, a series of accommodative monetary policy measures was
adopted. First, the level of the policy rate was lowered twice: from 0.5 percent to around
0.3 percent in October 2008 and further to around 0.1 percent in December 2008. Thus, a
period of raising the policy rate was sustained only during 2006-08. Similarly, the interest
rate applied to the complementary lending facility (a backstop to provide liquidity to financial
institutions) was cut from 0.75 percent to 0.5 percent in October 2008, and further to
0.3 percent in December 2008.12 In October 2008, the complementary deposit facility was
established and the interest rate applied to excess reserves was set at 0.1 percent.
Second, the Bank newly adopted a three-month funds-supplying operation at the fixed target
interest rate (0.1 percent) against pooled collateral up to a total amount of 10 trillion yen in
December 2009. This operation aimed at promoting a further decline in longer-term interest
rates in the money market. In March 2010, the amount of this operation was raised to
20 trillion yen. In August 2010, an additional six-month funds-supplying operation was
introduced with the maximum amount of 10 trillion yen. Thus, the total amount provided
under this operation reached 30 trillion yen.
Third, the "Special Funds-Supplying Operations to Facilitate Corporate Financing" was
established in December 2008 to ensure stability in the financial markets and facilitate
corporate financing. The Bank provided financial institutions with an unlimited amount of
funds over the fiscal year-end against the value of corporate debt pledged as the standing
eligible collateral at a policy rate. It was extended three times and the implementation period
ended in March 2010. Corporate bonds and CP were also purchased in 2009.
Fourth, the expression of the "understanding of medium- to long-term price stability"
(introduced in March 2006) was clarified further in December 2009 by eliminating the
possibility of 0 percent rate of price change. Namely, the expression was changed to "in a
positive range of 2 percent or lower with a midpoint of around 1 percent." This measure
aimed at removing public concern that 0 percent inflation would be tolerated by the Bank.
B. Framework for the CME policy
After the Lehman shock, overseas economies temporarily leveled out and showed a sharp
recovery from the second half of 2009 thanks to active fiscal and monetary policies adopted
collectively by major economies. However, the pace of growth began to slow somewhat after
mid-2010, mainly because of the waning demand-boosting effects of fiscal policy measures.
Moreover, global investors became increasingly risk averse in 2010 as the sovereign debt
problem in some peripheral European countries grew into a focus of concern and uncertainty
heightened over the outlook for the global economy, especially in the United States.
Consequently, credit spreads on corporate bonds mainly in the United States and Europe
have widened since 2010, and stock prices in many countries, including Japan, became
unstable.
With regard to Japan's economy, signs of a moderate recovery were evident in 2009, but the
pace began slowing down as the growth in exports and production decelerated in mid-2010.
The slow pace of recovery was also expected in the near future due to the continued
slowdown in overseas economies, the ending of demand-boosting fiscal policy measures to
promote expenditure on durable consumer goods, and the continued appreciation of the yen.
The yen continued to appreciate since it has been viewed as a relatively safe currency
(Chart 5).
Given this background, the Bank introduced the CME policy in October 2010. This policy
comprises the following three pillars. First, the guideline (or targeted policy rate) for money
market operations was changed from "around 0.1 percent" to "around 0-0.1 percent." This
policy could be regarded as a virtually zero interest rate policy. In addition, the interest rate
applied to the complementary lending facility was maintained at 0.3 percent and that to the
complementary deposit facility at 0.1 percent.
Second, the Bank newly introduced the forward guidance policy and made the commitment
to a zero interest rate policy being maintained until the price stability defined under the
"understanding of medium- to long-term price stability" was in sight.13 The expression
in a positive range of 2 percent or lower with a
describing price stability was maintained as
midpoint of around 1 percent. In February 2012, an important decision was made to revise
this framework in two steps. The first step was to introduce "the price stability goal in the
medium to long term," which would be "within a positive range of 2 percent or lower," while
setting the goal "at 1 percent for the time being." The definition of this goal was to be
examined in principle once every year. The second step was to strengthen the forward
guidance policy by committing to the CME policy through the virtually zero interest rate policy
and the Asset Purchase Program, which I will describe later, until the Bank judged that the
1 percent goal was in sight.
I believe that these changes constitute a considerable departure from previous practices for
two reasons. One is because medium- to long-term price stability is now defined as a "goal"
and is uniformly set through the consensus of all members of the Policy Board. Previous
price stability was defined as an "understanding" in a manner that embraced differing views
of price stability by each member, or it was simply a collection of the board members' various
views. The other reason is that at both the market and individual level, the word "goal" may
be viewed as a sign of stronger action on the part of the Bank than the word "understanding"
would suggest, even though the Bank's determination to conquer mild deflation is intact. It is
true that some people regarded the term "understanding" as being too passive, and it did not
indicate positive action by the Bank. For this reason, these changes accompanied the
decision to increase the total size of the Asset Purchase Program by 10 trillion yen, partly to
demonstrate the Bank's strong commitment and also to ensure the path toward economic
recovery. I take the view that these actions helped promote public understanding of the
Bank's determination to overcome mild deflation.
Third, the Bank introduced the Asset Purchase Program to promote the decline in
longerterm interest rates and various risk premiums. The assets to be purchased under the
program covered JGBs (with a remaining maturity of one to three years),14 treasury discount
bills (T-Bills), commercial paper (CP), corporate bonds, exchange-traded funds (ETFs), and
Japan real estate investment trusts (J-REITs). The existing three- and six-month
fundssupplying operations are still in effect. The total outstanding amount of assets to be
purchased and funds-supplying operations (hereafter called simply the amount of the Asset
Purchase Program) was initially set at about 35 trillion yen, and it was decided to meet the
target by the end of 2011. Since then, monetary easing has been repeatedly strengthened.
The total amount of the program was increased eight times from the initial 35 trillion yen to
the current target of 101 trillion yen (to be completed by the end of 2013), as shown in
Chart 9. During 2012, the program was expanded five times (February, April, September,
October, and December). The increase has been conducted mainly through the purchase of
JGBs (from an initial 1.5 trillion yen to 44 trillion yen) and T-Bills (from an initial 2 trillion yen
to 24.5 trillion yen).
C. What are the differences between the QE and CME policies?
The CME policy differs from the QE policy in several ways. First, the Asset Purchase
Program covers a wider range of financial assets than those of the QE policy and those of
other central banks with nonstandard monetary policies. This reflects the view that the direct
purchase of various financial assets may encourage the further decline in longer-term
interest rates and risk premiums through possibly greater portfolio rebalance and signaling
effects (Chart 10).
Second, the CME policy directly aims at lowering longer-term interest rates and risk
asset side of the Bank's balance
premiums through an emphasis on asset purchases - the
sheet. This is a sharp contrast from the QE policy, where the main focus was on the size of
the current account balance at the Bank - the liability side of the Bank's balance sheet. It is
important to note that the volume of the current account balance is less emphasized here
than in the QE policy. Instead, with the CME policy it is important to examine whether there is
room for further monetary easing by encouraging a further decline in longer-term interest
rates and risk premiums. Thus, the size of excess reserves is no longer a target and is
endogenously determined as a result of market operations.
Third, the positive interest rate of 0.1 percent applied to the complementary deposit facility
(introduced in October 2008) remains under the CME policy, while the policy target was set
in the range of around 0-0.1 percent. This differs from the QE policy, where no such a facility
was present under the zero short-term interest rate environment. The Bank pays an interest
rate of 0.1 percent on banks' excess reserves with the Bank for several reasons. First, as
pointed out earlier with respect to the assessment of the QE policy, shrinkage of the
interbank markets may generate a situation in which financial institutions are unable to raise
funds promptly from the markets when most needed. As a related issue, since this interest
rate forms the floor for interbank market interest rates, the Bank is able to smoothly provide
sufficient liquidity to the market without causing large fluctuations in the interbank market
rates. Moreover, as a future issue, it has also been pointed out by Svensson (2012)15 that
maintaining such a deposit facility interest rate makes it easier for a central bank to conduct
an exit strategy smoothly by containing excessive inflation risks within the phase of economic
recovery. If such a rate already exists, a central bank may be able to raise the deposit facility
interest rate, thereby leading to higher interbank market interest rates even if there are ample
excess reserves.
However, positive aspects related to removing the interest rate have been pointed out. For
example, a positive impa