Stefan Angrick

I spend a lot of time looking at how the Bank of Japan (BOJ) manages financial institutions' current account balances, more commonly known as “reserves”. The amount and price of these reserves influence financial institutions' net income, so discussions on the BOJ's monetary policy options often look at how these could be tweaked. RStudio's Shiny package is a great tool to make sense of it all.

The BOJ has a tiered reserve system composed of a “basic balance” with a positive rate of 0.1%, a “macro add-on balance” that goes unremunerated, and a “policy rate balance” subject to the -0.1% policy rate. By varying the size and interest rate of each tier, the BOJ can influence financial markets in different ways. For example, lowering the policy rate while simultaneously increasing the share of the positive rate balance could would raise the average interest rate paid to banks, thereby increasing their net interest income.

Playing with different combinations of these parameters can be quite useful for understanding different policy options. Doing this in a spreadsheet often gets quite convoluted, though, as there's no clean way to separate logic from presentation. This where RStudio's Shiny package can help. Shiny provides a set of tools to develop interactive web apps that call an R backend to perform calculations or generate plots. This makes it an ideal choice.

I've put together a Shiny app to simulate changes to the BOJ's reserve tiering system, the app.R Shiny script for which can be found here. Note that the app requires a file www/data.csv with source data from the BOJ: date (R date), pos_bal (positive rate balance in JPY terms), zer_bal (zero rate balance), neg_bal (negative rate balance), pos_rate (rate on positive rate balance), zer_rate (rate on zero rate balance), neg_rate (rate on negative rate balance), tot_bal (total current account balance), and cal_rate (uncollateralised overnight call rate, currently not used).

An interactive online version of the app is available here, thanks to the magic of RStudio's shinyapps.io platform.

Update (15 July 2024): Here is an updated version of the online app which I put together in February 2024 just before the BOJ dropped negative interest rate policy.

It goes without saying that the app is in no way officially related to or endorsed by the Bank of Japan.

More Information

• Shiny tutorial that covers the basics, reactions, and appearance of Shiny apps in a compact three-part course.
• Oxford Economics report looking at BOJ policy options and reserve tiering.
• Bloomberg report looking at possible tweaks to the tiering system.
• BIS report analysing how central banks have implemented negative interest rates.
• ADBI working paper that looks into negative interest rates.
• BIS working paper that looks into unconventional monetary policy more generally.