The Bank of Japan is the central bank of Japan.
It is a juridical person established based on the Bank of Japan Act (hereafter
the Act), and is not a government agency or a private corporation.
The Act sets the Bank's objectives "to issue banknotes and
to carry out currency and monetary control" and "to ensure smooth
settlement of funds among banks and other financial institutions, thereby
contributing to the maintenance of stability of the financial system."
The Act also stipulates the Bank's principle of currency and
monetary control as follows: "currency and monetary control by the Bank of
Japan shall be aimed at achieving price stability, thereby contributing to the
sound development of the national economy."
The Bank's business operations to achieve the above objectives
are described in About the Bank, Monetary
Policy, Financial System, Payments
and Markets, Banknotes,
The Bank's Treasury Funds and JGS Services, International
Finance, Research and Studies, Statistics and Announcements. The Bank has also decided and made public
its organizational principles, which constitute a
set of fundamental values to be respected by the Bank, as the central bank of
Japan. The officers and employees of the Bank are to keep these principles in
mind at all times in the conduct of business operations.
Outline
of Monetary Policy
The Bank of Japan, as the central
bank of Japan, decides and implements monetary policy with the aim of
maintaining price stability.
Price stability is important because
it provides the foundation for the nation's economic activity.
In implementing monetary policy, the
Bank influences the formation of interest rates for the purpose of currency and
monetary control, by means of its operational instruments, such as money market
operations.
The basic stance for monetary policy
is decided by the Policy Board at Monetary Policy Meetings (MPMs). At MPMs, the
Policy Board discusses the economic and financial situation, decides the
guideline for money market operations and the Bank's monetary policy stance for
the immediate future, and announces decisions immediately after the meeting
concerned. Based on the guideline, the Bank sets the amount of daily money
market operations and chooses types of operational instruments, and provides
and absorbs funds in the market.
Price Stability and the "Price Stability Target" of 2
Percent
The Bank of Japan Act states that
the Bank's monetary policy should be "aimed at achieving price stability,
thereby contributing to the sound development of the national economy."
Price stability is important because
it provides the foundation for the nation's economic activity. In a market
economy, individuals and firms make decisions on whether to consume or invest,
based on the prices of goods and services. When prices fluctuate, individuals
and firms find it hard to make appropriate consumption and investment
decisions, and this can hinder the efficient allocation of resources in the
economy. Unstable prices can also distort income distribution.
On this basis, the Bank set the
"price stability target" at 2 percent in terms of the year-on-year
rate of change in the consumer price index (CPI) in January 2013, and has made
a commitment to achieving this target at the earliest possible time.
For details, please see The
"Price Stability Target" under the Framework for the Conduct of
Monetary Policy(released
on January 22, 2013). Also, the Bank released the statement titled "Joint
Statement of the Government and the Bank of Japan on Overcoming Deflation and
Achieving Sustainable Economic Growth"with the government in January 2013.
Monetary Policy and Money Market Operations
The Bank's Policy Board decides on
the basic stance for monetary policy at MPMs. The Policy Board discusses the
economic and financial situation and then decides an appropriate guideline for
money market operations at MPMs. After every MPM, the Bank releases its
assessment of economic activity and prices as well as the Bank's monetary
policy stance for the immediate future, in addition to the guideline for money
market operations.
According to the guideline for money
market operations decided at MPMs, the Bank controls the amount of funds in the
money market, mainly through money market operations.
The Bank supplies funds to financial
institutions by, for example, extending loans to them, which are backed by
collateral submitted to the Bank by these institutions. Such an operation is
called a funds-supplying operation. The opposite type of operation, in which
the Bank absorbs funds by for example issuing and selling bills, is called a
funds-absorbing operation.
For details on the Bank's current guideline for money market
operations, please see Statements on
Monetary Policy.
Monetary Policy Meetings (MPMs)
MPMs are held eight times a year,
each time for two days. At the MPMs, the Policy Board members discuss and
decide the guideline for monetary market operations. The monetary policy
decisions are made by a majority vote of the nine members of the Policy Board,
which consists of the Governor, the two Deputy Governors, and the six other
members.
In addition to in-depth research and
analysis on economic and financial conditions, the Bank studies and examines
various matters concerning monetary policy, such as monetary policy strategies
and instruments as well as the financial system. The Bank makes use of its
research findings as the basis for deciding monetary policy.
Independence and Accountability to the Public
The experience of a number of
countries shows that conduct of monetary policy tends to come under pressure to
adopt inflationary policies. For this reason, it has become the norm throughout
the world for monetary policy to be conducted by a central bank that is neutral
and independent from the government, and equipped with the requisite expertise.
The Act states, "The Bank of
Japan's autonomy regarding currency and monetary control shall be
respected." Of course, it is important that the Bank's monetary policy and
the basic stance of the government's economic policy be mutually harmonious,
and thus it is stipulated that the Bank shall "always maintain close
contact with the government and exchange views sufficiently."
Monetary policy has a significant
influence on the daily lives of the public, and thus the Bank should seek to
clarify to the public the content of its decisions, as well as its
decision-making processes, regarding monetary policy. In view of this, the Bank
immediately releases its decisions on monetary policy, such as the guideline
for money market operations and its views on economic and financial
developments, after each MPM. In addition, regular press conferences by the
chairman of the Policy Board -- the Governor -- are held to explain details of
the monetary policy decisions. The Bank also releases the Summary of Opinions
at each MPM and the minutes of MPMs, and releases their transcripts ten years
later, to clarify points discussed by the Policy Board in the process of
reaching decisions. In addition, the Bank prepares and submits the Semiannual
Report on Currency and Monetary Control to the Diet, in June and December each
year, and explains its policies. Furthermore, the Governor and other executives
appear before committees of both houses of the Diet, the House of
Representatives and the House of Councillors, when requested and answers
questions regarding the conduct of the Bank's policies and operations.
It is very important to present the Bank's basic thinking on the
conduct of monetary policy and evaluation of the developments of the economy
and prices in a timely and lucid manner, from the viewpoint of fulfilling the
Bank's accountability to the public. In addition, since monetary policy works
through financial markets, the effects of monetary policy will permeate more
smoothly if market participants gain a deeper understanding of the Bank's
thinking. For details on the current conduct of the Bank's monetary policy,
please see "Price Stability Target" of 2 Percent and
"Quantitative and Qualitative Monetary Easing with Yield Curve
Control."
Organization:
1.The Policy Board
The Policy Board is established as the Bank's highest
decision-making body. The Board determines the guideline for currency and
monetary control, sets the basic principles for carrying out the Bank's
operations, and oversees the fulfillment of the duties of the Bank's officers,
excluding Auditors and Counsellors.
2. The Bank's Officers
The Bank's officers are Policy Board members (including the
Governor and the Deputy Governors), Auditors, Executive Directors, and
Counsellors.
3. Departments, Branches, Local Offices in Japan, and Overseas
Representative Offices
There
are 15 departments at the Bank's Head Office (see Organization chart for details).
The Bank has 32 branches and 14 local offices in Japan, and
seven overseas representative offices (see Head Office,
Branches, and Overseas Offices for
details).
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