金融政策とは｜目的・手段・景気への効き方

What Is Monetary Policy? | Goals, Tools, and How It Works


Table of Contents

Overview

1. Definition and Objectives of Monetary Policy
2. Central Bank Goals (Different Targets by Country/Region)
3. Main Tools of Monetary Policy
4. Monetary Easing vs. Tightening (Differences in Effect)
5. Related Topics (Fiscal Policy Differences, Negative Interest Rates, Hawks vs. Doves)
6. Summary


Overview

Monetary policy refers to policies implemented by a central bank to ensure price and economic stability by guiding interest rates and adjusting market liquidity (money supply). Depending on the state of the economy and prices, it adjusts interest rates, asset purchases, and liquidity operations, influencing the economy as a whole through borrowing costs, exchange rates, and asset prices for households and corporations.


1. Definition and Objectives of Monetary Policy

  • Definition: A policy that controls short-term interest rates and liquidity through actions such as setting policy rates and open market operations, aiming to stabilize the economy and prices.
  • Core Objective: To avoid inflation and deflation, achieving a stable price environment. Ultimately, this supports sustainable employment and economic growth.

2. Central Bank Goals (Different Targets by Country/Region)

Most central banks aim for “price stability,” but the way this goal is defined and any accompanying objectives vary by region.

  • Bank of Japan (Japan): Aims to achieve a stable and sustainable 2% year-on-year rise in consumer prices.
  • Federal Reserve (U.S.): Pursues both price stability and maximum employment—the so-called “dual mandate.”
  • European Central Bank (Euro Area): Seeks to maintain inflation at 2% over the medium term.
  • Bank of England (U.K.): Targets a 2% inflation rate over the medium term.

Policy decisions are made through regular meetings such as the Bank of Japan Policy Board Meeting, U.S. FOMC, ECB Governing Council, and the Bank of England Monetary Policy Committee (MPC).


3. Main Tools of Monetary Policy

  • Open Market Operations (OMOs)
    Central banks adjust market liquidity and interest rates by buying or selling government securities and lending or absorbing funds.
    • Operations that supply liquidity (purchases, lending, etc.)
    • Operations that absorb liquidity (sales, borrowing, etc.)
  • Policy Rate (Guiding Key Short-Term Interest Rates)
    Includes benchmark lending rates (similar to the “official discount rate”) or targets for uncollateralized overnight call rates, which define the short-term interest rate range.
  • Reserve Requirement Ratio
    Adjusting the ratio of deposits banks must hold with the central bank affects the pace of credit creation. Raising it limits bank lending capacity, while lowering it eases liquidity.


4. Monetary Easing vs. Tightening (Differences in Effect)

  • Easing
    • Includes rate cuts, quantitative easing (QE), and expanded purchases of long-term government bonds, etc.
    • Generally lowers interest rates and increases liquidity, reducing borrowing costs and supporting investment and consumption. Aims to mitigate economic weakness and deflationary pressure.
  • Tightening
    • Includes rate hikes, quantitative tightening (QT), and balance sheet reduction.
    • Generally raises interest rates and reduces liquidity, curbing overheating and inflationary pressure. Helps restore supply-demand balance.

In practice, transmission occurs through multiple channels including interest rates, credit conditions, exchange rates, asset prices, and expectations (future outlook).


5. Related Topics (Fiscal Policy Differences, Negative Interest Rates, Hawks vs. Doves)

  • Difference from Fiscal Policy
    • Monetary policy: The central bank adjusts interest rates and liquidity to maintain price stability.
    • Fiscal policy: The government adjusts taxation and public spending (investments, transfers, etc.) to manage demand.
      The two differ in implementing bodies and methods but often function as complementary policies.
  • Negative Interest Rates
    In some countries, negative interest rates have been applied to a portion of commercial banks’ deposits held at the central bank. This does not mean personal savings accounts are directly subject to negative rates.
  • Hawks vs. Doves
    • Hawks: Prioritize price stability and tend to favor tightening measures (rate hikes, QT).
    • Doves: Emphasize economic support and tend to favor easing measures (rate cuts, QE).


6. Summary

Monetary policy is a core economic tool that aims to ensure price stability and sustainable economic growth by adjusting interest rates and liquidity. Depending on the situation, it shifts between easing and tightening, influencing households, corporations, and markets through multiple transmission channels. Policy decisions are made based on a comprehensive assessment of inflation, employment, growth, and financial conditions.

 

Back to list