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"The Bank of Japan's Monetary Policy and Bank Risk Premiums in the Money Market"

By Naohiko Baba, Motoharu Nakashima, Yosuke Shigemi and Kazuo Ueda


This short paper shows that under the Bank of Japan's Zero Interest Rate Policy and Quantitative Monetary Easing, not just the levels of money market rates but also the dispersion of rates across banks have fallen to near zero. Using the data on individual banks' Negotiable Certificate of Deposit rates, we first show that the dispersion of the rates among banks has fallen since 1999, the year of the adoption of the Zero Interest Rate Policy and has reached almost zero by 2004. We next show that the fall in the dispersion of the rates is not explained by a corresponding fall in the dispersion of the credit ratings of the banks. Rather, credit risk premiums seem to have disappeared in the money market. We also discuss possible relationships between this result and the Bank of Japan's monetary policy.

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  1. 12 A related point is whether or not the BOJ’s purchases of long-term government bonds have had direct effects on long-term interest rates. See, for example Oda and Ueda [2005] in this regard.
  2. and Kazuo Ueda [2005], “The effect of the Bank of Japan’s Zero Interest Rate Commitment and Quantitative Monetary Easing on the Yield Curve: A Macro-Finance Approach,” BOJ Working Paper Series,
  3. Kazuo Ueda, and Hiroshi Ugai [2005], “Japan’s Deflation,

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