From Window Guidance to Interbank Rates - Tracing the Transition of Monetary Policy in Japan and China

Sep 30, 2026

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Explores how monetary policy regimes shifted from mixed quantity-based and price-based tools toward greater reliance on price instruments in Japan and China. Uses historical statistics, computational text analysis, and structural vector autoregressive (SVAR) models to examine the interbank rate and “window guidance.” Finds window guidance initially effective but losing potency over time in both countries, with China’s decline reflecting Japan’s experience through financial development and liberalization. Shows interbank rates gaining importance, especially in China.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages38

Reading Time1 h 36 min

AccessFree to download

Introduction

Monetary policy instruments and intermediate targets

Motivation: role of the interbank rate and window guidance

Methodology and data approach

From Window Guidance to Interbank Rates: Tracing the Transition of Monetary Policy in Japan and China∗ Stefan Angricka,b and Naoyuki Yoshinoa,ca Asian Development Bank Institute b National Graduate Institute for Policy Studies cKeio University Japanese monetary policy up to 1991 was based on a mix of price-based and quantity-based instruments and targets. Echoes of this system are today found in Chinese monetary policy. We explore the transition of these two regimes using historical statistics, computational text analysis, and structural vector autoregressive (SVAR) models. Speciﬁcally, we examine the role of the interbank rate and “window guidance,”a policy by which authorities communicate target quotas for ∗We wish to thank Gene Ambrocio, Simon Bin, Hongyi Chen, Long Chen, Mali Chivakul, Dirk Ehnts, Zuzana Funga´cˇova´, Haihong Gao, Mikael Juselius, Juuso Kaaresvirta, Iikka Korhonen, Roberto Leon-Gonzalez, Yuanfang Li, Aaron Mehrotra, Naoko Nemoto, Riikka Nuutilainen, Sanae Okutsu, Jouko Rautava, Chang Shu, Lisheng Xiao, and Ming Zhang for helpful comments and suggestions on this paper. We also wish to thank the Bank of Finland’s Institute for Economies in Transition (BOFIT), the National Graduate Institute for Policy Studies (GRIPS), the Japanese Bankers Association, and the National Diet Library of Japan, where part of the research for this paper was conducted. Finally, we thank the authors of the open source software used in the empirical part of this paper: R and the ggplot2, SentimentAnalysis, vars and xts packages. The ﬁnancial support of the Japanese Monbukagakusho scholarship is also gratefully acknowledged. The views expressed here are those of the authors and do not necessarily reﬂect those of the organizations with which the authors were or are associated. Corresponding author (S. Angrick): Asian Development Bank Institute (ADBI), Kasumigaseki Building 8F, 3-2-5 Kasumigaseki, Chiyoda-ku, Tokyo 100-6008, Japan; National Graduate Institute for Policy Studies (GRIPS), 7-22-1 Roppongi, Minato-ku, Tokyo 106-8677, Japan; [contact@stefanangrick.net](contact@stefanangrick.net), [sangrick@adbi.org. N. Yoshino:](sangrick@adbi.org. N. Yoshino:) Asian Development Bank Institute (ADBI), Kasumigaseki Building 8F, 3-2-5 Kasumigaseki, Chiyoda-ku, Tokyo 100-6008, Japan; Keio University, 2-15-45 Mita, Minato-ku, Tokyo 108-8345, Japan; [yoshino@econ.keio.ac.jp](yoshino@econ.keio.ac.jp), [nyoshino@adbi.org](nyoshino@adbi.org). 280 International Journal of Central Banking June 2020 lending growth directly to commercial banks. We empirically demonstrate the declining eﬀectiveness of quantity measures and the increasing importance of price measures and provide recommendations for managing this transition. JEL Codes: E5, E52, E58 . 1. Introduction Monetary policy in most major economies has traditionally focused on control of the interbank interest rate to achieve an inﬂation target. By contrast, monetary policy in transition economies often relies on a mixed system of price-based and quantity-based instruments and targets. Japanese monetary policy prior to 1991 was based on such a mixed system, and echoes of this system are today found in China’s monetary policy setup. Both economies have shifted toward price measures as markets developed and matured. In this paper, we study this transition in Japan 1973–91 and China 2000–17 . Monetary policy in Japan and China traditionally relied on a range of diﬀerent instruments, such as the discount rate, reserve requirements, interbank rates, regulated retail interest rates, and window guidance, a policy by which authorities seek to directly guide commercial banks’ lending volumes through “moral suasion.”1 Monetary authorities deployed these instruments to achieve speciﬁc intermediate targets for credit quantities, such as the amount of commercial bank lending or the money supply, deemed consistent with ﬁnal targets for economic growth or price stability. Quantities and prices

FAQs

How do Japan and China’s monetary policy toolkits differ historically?

Both economies used mixed instruments combining price-based and quantity-based measures. Over time, as financial systems developed, emphasis moved toward price-based instruments and targets.

What is “window guidance” and why is it central to the analysis?

Window guidance is a policy where authorities communicate guidance intended to steer commercial banks’ lending volumes. The study evaluates how its effectiveness changes over time.

What do the SVAR model results indicate about the interbank rate and window guidance?

Window guidance is initially potent but steadily loses potency in both Japan and China. Interbank rates become more important as the transition progresses, with a stronger increase in China than in Japan.

Sep 30, 2026

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