Public Funds, ‘Price-Keeping Operations’, Deregulation and ‘Big Bang’

Abstract

In Japan, prices in financial markets have not normally been directly targeted by government policy, but there have been some exceptions to this general rule. The authorities in principle object to excessive volatility in financial markets. Excessive volatility is seen as likely to reduce the attractions of financial assets to investors, and thus raise the cost of capital over the longer term. Given its role in setting various interest rates, unjustified moves in the bond market in particular are capable of leading to inappropriate interest rates in the real economy, and therefore the authorities try at the very least to let the markets know when they believe that price moves are unjustified by fundamental factors.