The short-term rate is the policy instrument under the control of the central bank; via the expectation channel, its future path influences current economic circumstances and decisions. Specifying a trajectory of future rates in today’s projections is therefore a delicate problem with regard to the signals about the future course of monetary policy given to outside observers.
It is therefore important to ensure liquidity sources through collateralized transactions such as repos, also from the viewpoints of controlling moral hazard, deterring overdependence on central bank LLR and maintaining global financial stability. Financial institutions, including Japanese banks, typically hold large amounts of government securities issued by their home countries.