The Exit from Quantitative Easing

The exit from CEQ was primarily conducted by reducing rapidly the most flexible asset on the Boss’s balance sheet which Is the amount of Its bills purchases from private banks, to match the rapid decline in the amount of excess serves. The advantage of this strategy was that the exit of CEQ was predominantly limited to Just one item on the Boss’s balance sheet and that the balance sheet adjustments were conducted through operations directly with the banking sector, which facilitated the management of the exit process.
Intentionally, the BOX chose to reduce its holdings of Japanese government securities very slowly and moderately in order not to distort supply and demand conditions in Japanese bond markets. In fact, the BOX kept In place Its regular purchases of long-term Japanese government bonds. It realized the gradual reduction of Japanese government securities on Its balance sheet mainly by reducing the amount of short-term Japanese government securities. The BOX implemented certain new liquidity providing operations in order to promote the proper functioning and stability of interbrain money markets.
The Japanese experience shows that when exiting from CEQ, a central bank needs to consider very carefully how to restore the functioning of these crucial markets, as one result of CEQ may be that activity in interbrain markets becomes very subdued. All in all, the exit room CEQ in Japan has been considered a success and its experience may serve as a useful example for other central banks. Fernando Gutsurge del Arroyo Gong;leg provided excellent statistical support. The views expressed in this note are solely the responsibility of the author and should not be Interpreted as reflecting the views of the Bank of Spain.

After having followed a zero interest rate policy strategy and facing a further deteriorating economy in an environment of falling prices (deflation), the Bank of Japan (BOX) announced the introduction of CEQ on 19 March 2001 and kept it in place until 9 March 2006. The Japanese version of CEQ consisted of the following elements, such as published by the Boo]: 1) Monetary policy target: The current account balances (CABs = required + excess bank reserves) became the operating instrument of Japanese monetary policy, replacing the overnight institutionalized call rate.