The channels for the increased stimulus work through the imperfect substitutability of assets and expectations about future monetary policies. Such operations could lower long-term rates relative to short-term rates, lower private rates relative to government rates, result in a depreciation of the yen, extend the expectations of lower short-term rates over a longer period, and lead to expectations of higher inflation in the future.
The Bank of Japan recently changed its operating procedure – from targeting an overnight interest rate to targeting the level of bank reserve balances at the Bank of Japan. In practical terms, this marked a return to the zero interest rate policy by targeting the level of reserves that had been held when they had been operating earlier at a zero interest rate.