Bank Of Japan

Updated on March 15, 2024
Article byPriya Choubey
Edited byPriya Choubey
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Bank Of Japan?

The Bank of Japan (BOJ), incorporated in 1882 under the BOJ Act, is Japan’s central bank, whose headquarters are located in the business district of Nihonbashi. This financial institution regulates the nation’s monetary policy, prints new currency, decides interest rates, and maintains price stability.

Bank Of Japan (BOJ)

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The BOJ is neither a private entity nor a government organization; it is considered a juridical body. It is responsible for stabilizing the Japanese economy and financial system through its monetary control measures. Other than the roles mentioned above, the BOJ also gathers economic data to analyze and depict the prevailing conditions. Further, it publicly releases such information.

Key Takeaways

  • The Bank of Japan (BOJ) is Japan’s juridical body that serves as a central banking authority for deciding the nation’s monetary policy measures and governing the national financial system to ensure price stability and economic growth.
  • It was recognized as Japan’s central bank on October 10, 1882, under the enactment of the Bank of Japan Act. However, it commenced its operations in 1885 after printing its first currency.
  • It is controlled and governed by the policy board, which comprises nine members, including the governor and 2 deputy governors.

Bank Of Japan Explained

The Bank of Japan is the central governing financial institution of the nation. Its head office is in Nihonbashi, and it has 15 departments, 14 local offices, and 32 branches. The existing Bank of Japan governor, as of April 2023, is Kazuo Ueda. He is responsible for managing and controlling the bank’s businesses. He is also in charge of the bank’s internal auditor’s office. 

The primary purpose of the Japanese Central Bank is to boost price stability and monetary development in the nation. Indeed, the BOJ ensures transparency by promptly disclosing policy decisions, conducting regular press conferences, and submitting reports to the Diet. While it maintains autonomy in monetary control, it collaborates with the government to ensure policy coherence.

The bank came into operation with the printing of the first currency in 1885. However, it ceased such operations for a short time after World War II. Japan has witnessed a long-lasting deflation for decades; however, to boost the nation’s economy, the BOJ has sustained a negative interest rate policy for years now, being -0.1% in December 2023.

In its constant efforts to improve the consumer price index (CPI), however, the falling consumer demand due to the declining population is a hurdle in the bank’s propaganda. However, the BOJ has somehow managed to curb inflation, which would have otherwise impacted the economy due to excessive consumer spending.

History

The Central Bank of Japan is a judicial entity that originated in June 1882 under the enactment of the BOJ Act. However, they officially recognized it as Japan’s central bank on October 10, 1882. Moreover, the BOJ issued its first currency in 1885, commencing its operations at Japan’s central bank.

Later, in February 1942, the BOJ Act 1942 was promulgated to incorporate and deal with the situation of wartime in Japan. Then, on May 1, 1942, the BOJ was also reformed in accordance with the Act of 1942, highlighting currency regulation and credit control in the wartime scenario. The BOJ aimed to develop and manage the nation’s credit system, adhere to national policies, and improve Japan’s economic activities for financial stability.

The BOJ Act 1942 underwent various amendments post-World War II. One of the prominent transformations was the formation of the policy board in June 1949 as the nation’s highest decision-making body. Then, in June 1997, the 1942 Act witnessed an overall revision to ensure transparency and independence as two of its fundamental principles. However, it became effective on April 1, 1998.

Functions

As a central bank, the BOJ performs critical functions for the country’s economic growth and stability. These are as follows:

  1. Issuing Currency: The BOJ issues banknotes in various denominations, i.e., 1,000 yen, 2,000 yen, 5,000 yen, and 10,000 yen, ensuring their seamless circulation within the economy.
  2. Issuing Treasury Fund: It also facilitates transactions of government funds like pensions and taxes, contributing to economic stability and development.
  3. Banking Operations: It serves as an issuer of banknotes, a financial intermediary for other banks, and a banker for the government.
  4. Implementing Monetary Policy: The primary aim of the BOJ is to decide and impose the nation’s monetary policy, such as interest rate changes and money market operations, to achieve economic and price stability.
  5. Lending Funds: It also functions as a lender of last resort to maintain financial stability in the system.
  6. Issues Central Bank Money: Besides banknotes and coins, the BOJ issues central bank money, including BOJ account deposits, essential for daily transactions. Moreover, it ensures the safety and reliability of central bank money, which is inevitable for payment and settlement activities.
  7. Maintains Price Stability: The BOJ manages currency value internally and externally through monetary measures for exchange rate stability.
  8. Fosters Public Confidence: Moreover, it facilitates the smooth functioning of the national payment and settlement systems. In order to support economic transactions and build public trust in the monetary system.

Monetary Policy

The Central Bank of Japan frames and imposes monetary policy to foster price stability and national economic growth. Stable prices result in fair income distribution and efficient resource allocation in the economy. Therefore, the BOJ policy rates target a seamless CPI growth of 2% annually. Further, the BOJ’s interest rate decisions and money market operations target monetary and currency control in the nation.

Every year, the BOJ holds eight Monetary Policy Meetings (MPMs), and each MPM lasts for two days. The agenda of these MPMs is to discuss economic and financial conditions to shape Japan’s monetary policy guidelines. The policy board has 9 members, including the governor, 2 deputy governors, and 6 others, namely the executive directors, auditors, and counselors. Moreover, in every meeting, if a majority of members vote in favor of a decision, they pass it. Also, the BOJ manages money market funds by extending loans to financial institutions (funds-supplying) or issuing or selling bills (funds-absorbing).

Frequently Asked Questions (FAQs)

1. Did the Bank Of Japan collapse?

The BOJ didn’t collapse, as claimed by Robert Kiyosaki, who speculated that the burst of the Japanese economic bubble in November 2023 was created due to the BOJ’s quantitative easing measures.

2. Who owns the Bank Of Japan?

The BOJ functions as a juridical entity; it belongs neither to any private party nor to the government. Also, an independent and transparent policy board governs it.

3. Will the Bank Of Japan intervene?

In September 2022, Japan entered the currency market to strengthen its currency since 1998. The Bank of Japan’s decision came in response to its adherence to its highly accommodating monetary policy, which pushed the yen to a low of 145 per dollar. Then, in October 2022, BOJ intervened once more to uplift the yen, which dived to 151.94, the lowest in the last 32 years.

4. Did the Bank Of Japan raise rates?

The Central Bank of Japan’s interest rates have been negative for years now amid its ultra-easing monetary policy to deal with the nation’s decades-long deflation. Market experts and economists hope the hostile interest policy will end by April 2024.

This article has been a guide to what is Bank Of Japan. Here, we explain the concept along with its monetary policy, history, and functions. You may also find some useful articles here –

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