Now let me say a few words about the roles that the official discount rate plays. In the past, the Bank’s decision as to the official discount rate was a basic tool of monetary policy. Therefore, change in that rate had an announcement effect since it embodied change in the basic stance of monetary policy.
In 1994, however, deregulation of interest rates was complete, and the institutional linkage between the official discount rate and bank deposit rates disappeared. In 1996, the Bank of Japan made it clear that the Bank would no longer use the discount window lending, to which the official discount rate was applied, as a means of monetary operations.