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Bank of Japan

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Bank of Japan
日本銀行 (in Japanese)
Headquarters in Tokyo
Headquarters in Tokyo
HeadquartersChūō, Tokyo, Japan
Coordinates35°41′10″N 139°46′17″E / 35.6861°N 139.7715°E / 35.6861; 139.7715
Established27 June/10 October 1882
GovernorKazuo Ueda
(9 April 2023 – present)
Central bank of Japan
CurrencyJapanese yen
JPY (ISO 4217)
Reserves1 179 500 million USD[1]
Bank rate–0.10%[2]
Websiteboj.or.jp

The Bank of Japan (日本銀行, Nippon Ginkō, BOJ, JASDAQ: 8301) is the central bank of Japan.[3] The bank is often called Nichigin (日銀) for short. It has its headquarters in Chūō, Tokyo.[4]

History

Like most modern Japanese institutions, the Bank of Japan was founded after the Meiji Restoration. Prior to the Restoration, Japan's feudal fiefs all issued their own money, hansatsu, in an array of incompatible denominations, but the New Currency Act of Meiji 4 (1871) did away with these and established the yen as the new decimal currency, which had parity with the Mexican silver dollar.[5] The former han (fiefs) became prefectures and their mints became private chartered banks which, however, initially retained the right to print money. For a time both the central government and these so-called "national" banks issued money. A period of unanticipated consequences was ended when the Bank of Japan was founded in Meiji 15 (10 October 1882), under the Bank of Japan Act 1882 (27 June 1882), after a Belgian model. It has since been partly privately owned (its stock is traded over the counter, hence the stock number).[6] A number of modifications based on other national banks were encompassed within the regulations under which the bank was founded.[7] The institution was given a monopoly on controlling the money supply in 1884, but it would be another 20 years before the previously issued notes were retired.[8]

Following the passage of the Convertible Bank Note Regulations (May 1884), the Bank of Japan issued its first banknotes in 1885 (Meiji 18). Despite some small glitches—for example, it turned out that the konjac powder mixed in the paper to prevent counterfeiting made the bills a delicacy for rats—the run was largely successful. In 1897, Japan joined the gold standard,[9] and in 1899 the former "national" banknotes were formally phased out.

The Osaka branch of the Bank of Japan is seen in the top right of this 1930 aerial photograph. The wide street in front of the bank is part of the Mido-Suji.

Since its Meiji era beginnings, the Bank of Japan has operated continuously from main offices in Tokyo and Osaka.

Reorganization

The Bank of Japan was reorganized in 1942[3] (fully only after 1 May 1942), under the Bank of Japan Act of 1942 (日本銀行法 昭和17年法律第67号), promulgated on 24 February 1942. There was a brief post-war period during the Occupation of Japan when the bank's functions were suspended, and military currency was issued. In 1949, the bank was again restructured.[3]

In the 1970s, the bank's operating environment evolved along with the transition from a fixed foreign currency exchange rate and a rather closed economy to a large open economy with a variable exchange rate.[10]

During the entire post-war era, until at least 1991, the Bank of Japan's monetary policy has primarily been conducted via its 'window guidance' (窓口指導) credit controls (which are the model for the Chinese central bank's primary tool of monetary policy implementation), whereby the central bank would impose bank credit growth quotas on the commercial banks. The tool was instrumental in the creation of the 'bubble economy' of the 1980s. It was implemented by the Bank of Japan's then "Business Department" (営業局), which was headed during the "bubble years" from 1986 to 1989 by Toshihiko Fukui (who became deputy governor in the 1990s and governor in 2003).[11]

A major 1997 revision of the Bank of Japan Act was designed to give it greater independence;[12] however, the Bank of Japan has been criticized for already possessing excessive independence and lacking in accountability before this law was promulgated.[13] A certain degree of dependence might be said to be enshrined in the new Law, article 4 of which states:

In recognition of the fact that currency and monetary control is a component of overall economic policy, the Bank of Japan shall always maintain close contact with the government and exchange views sufficiently, so that its currency and monetary control and the basic stance of the government's economic policy shall be mutually harmonious.

However, since the introduction of the new law, the Bank of Japan has rebuffed government requests to stimulate the economy. [14]

The trail of policies

Japan money supply and inflation (year over year)
  M2 money supply
  Inflation

When the Nixon shock happened in August 1971, the Bank of Japan (BOJ) could have appreciated the currency in order to avoid inflation. However, they still kept the fixed exchange rate as 360Yen/$ for two weeks, so it caused excess liquidity. In addition, they persisted with the Smithsonian rate (308Yen/$), and continued monetary easing until 1973. This created a greater-than-10% inflation rate at that time. In order to control stagflation, they raised the official bank rate from 7% to 9% and skyrocketing prices gradually ended in 1978.

In 1979, when the energy crisis happened, the BOJ raised the official bank rate rapidly. The BOJ succeeded in a quick economic recovery. After overcoming the crisis, they reduced the official bank rate. In 1980, the BOJ reduced the official bank rate from 9.0% to 8.25% in August, to 7.25% in November, and to 5.5% in December in 1981. "Reaganomics" was in vogue in America and USD became strong. However, Japan tried to implement fiscal reconstruction at that time, so they did not stop their financial regulation.

In 1985, the agreement of G5 nations, known as the Plaza Accord, USD slipped down and Yen/USD changed from 240yen/$ to 200yen/$ at the end of 1985. Even in 1986, USD continued to fall and reached 160yen/$. In order to escape deflation, the BOJ cut the official bank rate from 5% to 4.5% in January, to 4.0% in March, to 3.5% in April, 3.0% in November. At the same time, the government tried to raise demand in Japan in 1985, and did economy policy in 1986. However, the market was confused about the rapid fall of USD. After the Louvre Accord in February 1987, the BOJ decreased the official bank rate from 3% to 2.5%, but JPY/USD was 140yen/$ at that time and reached 125yen/$ in the end of 1987. The BOJ kept the official bank rate at 2.5% until May in 1989. Financial and fiscal regulation led to a widespread over-valuing of real estate and investments and Japan faced a bubble at that time.

Japan bonds
Inverted yield curve in 1990
Zero interest-rate policy started in 1995
  30 year
  20 year
  10 year
  5 year
  2 year
  1 year

After 1990, the stock market and real asset market fell. At that time BOJ regulated markets until 1991 in order to end the bubble.

In January 1995, a terrible earthquake happened and Japanese yen became stronger and stronger. JPY/USD reached 80yen/$, so the BOJ reduced the office bank rate to 0.5% and the yen recovered. The period of deflation started at that time.

In 1999, the BOJ started zero-interest-rate policy (ZIRP), but they ended it despite government opposition when the IT bubble happened in 2000. However, Japan's economic bubble burst in 2001 and the BOJ adopted the balance of current account as the main operating target for the adjustment of the financial market in March 2001 (quantitative relaxation policy), shifting from the zero-interest-rate policy. From 2003 to 2004, Japanese government did exchange intervention operation in huge amount, and the economy recovered a lot. In March 2006, BOJ finished quantitative easing, and finished the zero-interest-rate policy in June and raised to 0.25%.

In 2008, the financial crisis happened, and Japanese economy turned bad again. BOJ reduced the uncollateralized call rate to 0.3% and adopted the supplemental balance of current account policy. In December 2008, BOJ reduced uncollateralized call rate again to 0.1% and they started to buy Japanese Government Bond (JGB) along with commercial paper (CP) and corporate bonds. [15]

Japanese bond market
Negative interest rates started in 2014.
  40 year bond
  10 year bond
  5 year bond
  1 year bond
  1 month bond

In 2013, the head of the BOJ (Kuroda) announced a new quantitative easing program (QE). This program would be very large in terms of quantity, but it would also be different in terms of quality—qualitative easing (QQE). In other words, the BOJ would (and did) also purchase riskier assets like stocks and REITs.[16]

In 2016, the BOJ initiated yield curve control (YCC).[17]

In 2016, the BOJ started its negative interest rates policy (NIRP).[17]

They are the largest owner of Japanese stocks.[18][19][20]

Curbing deflation

Following the election of Prime Minister Shinzō Abe in December 2012, the Bank of Japan, with Abe's urging, took proactive steps to curb deflation in Japan. On 30 October 2012, The Bank of Japan announced that it would undertake further monetary-easing action for the second time in a month.[21] Under the leadership of new Governor Haruhiko Kuroda, the Bank of Japan released a statement on 5 April 2013 announcing that it would be purchasing securities and bonds at a rate of 60-70 trillion yen a year in an attempt to double Japan's money base in two years.[22] But by 2016, it was apparent that three years of monetary easing had had little effect on deflation so the Bank of Japan instigated a review of its monetary stimulus program.[23]

Mission

The place of the foundation of the Bank of Japan

According to its charter, the missions of the Bank of Japan are

  • Issuance and management of banknotes
  • Implementation of monetary policy
  • Providing settlement services and ensuring the stability of the financial system
  • Treasury and government securities-related operations
  • International activities
  • Compilation of data, economic analyses and research activities

Location

The Bank of Japan is headquartered in Nihonbashi, Chūō, Tokyo, on the site of a former gold mint (the Kinza) and, not coincidentally, near the famous Ginza district, whose name means "silver mint". The Neo-baroque Bank of Japan building in Tokyo was designed by Tatsuno Kingo in 1896.

The Osaka branch in Nakanoshima is sometimes considered as the structure which effectively symbolizes the bank as an institution.

  • Bank of Japan
  • The head office of the Bank of Japan located in Nihonbashi Mainoucho, Chuo-ku, Tokyo
    The head office of the Bank of Japan located in Nihonbashi Mainoucho, Chuo-ku, Tokyo
  • The Bank of Japan Osaka Branch
    The Bank of Japan Osaka Branch
  • The Bank of Japan Otaru Museum in Otaru, Hokkaido
    The Bank of Japan Otaru Museum in Otaru, Hokkaido

Governor

Governor of the Bank of Japan
Incumbent
Kazuo Ueda
since 9 April 2023
StyleHis Excellency
AppointerThe Prime Minister
Term lengthFive years
Inaugural holderYoshihara Shigetoshi
Formation6 October 1882

The governor of the Bank of Japan (総裁, sōsai) has considerable influence on the economic policy of the Japanese government.

List of governors

# Governor Took office Left office
1 Yoshihara Shigetoshi 6 October 1882 19 December 1887
2 Tomita Tetsunosuke 21 February 1888 3 September 1889
3 Kawada Koichiro 3 September 1889 7 November 1896
4 Iwasaki Yanosuke 11 November 1896 20 October 1898
5 Tatsuo Yamamoto 20 October 1898 19 October 1903
6 Shigeyoshi Matsuo 20 October 1903 1 June 1911
7 Korekiyo Takahashi 1 June 1911 20 February 1913
8 Yatarō Mishima 28 February 1913 7 March 1919[24]
9 Junnosuke Inoue (First) 13 March 1919 2 September 1923
10 Otohiko Ichiki 5 September 1923 10 May 1927
11 Junnosuke Inoue (Second) 10 May 1927 12 June 1928
12 Hisaakira Hijikata 12 June 1928 4 June 1935
13 Eigo Fukai 4 June 1935 9 February 1937
14 Seihin Ikeda 9 February 1937 27 July 1937
15 Toyotaro Yuki 27 July 1937 18 March 1944
16 Keizo Shibusawa 18 March 1944 9 October 1945
17 Eikichi Araki (First) 9 October 1945 1 June 1946
18 Hisato Ichimada 1 June 1946 10 December 1954
19 Eikichi Araki (Second) 11 December 1954 30 November 1956
20 Masamichi Yamagiwa 30 November 1956 17 December 1964
21 Makoto Usami 17 December 1964 16 December 1969
22 Tadashi Sasaki 17 December 1969 16 December 1974
23 Teiichiro Morinaga 17 December 1974 16 December 1979
24 Haruo Maekawa 17 December 1979 16 December 1984
25 Satoshi Sumita 17 December 1984 16 December 1989
26 Yasushi Mieno 17 December 1989 16 December 1994
27 Yasuo Matsushita 17 December 1994 20 March 1998
28 Masaru Hayami 20 March 1998 19 March 2003
29 Toshihiko Fukui 20 March 2003 19 March 2008
30 Masaaki Shirakawa 9 April 2008 19 March 2013
31 Haruhiko Kuroda 20 March 2013 9 April 2023
32 Kazuo Ueda 9 April 2023 Incumbent

Monetary Policy Board

As of 9 April 2023, the board responsible for setting monetary policy consisted of the following 9 members:[25]

  1. Kazuo Ueda, Governor of the BOJ
  2. Uchida Shinichi, Deputy Governor of the BOJ
  3. Himino Ryozo, Deputy Governor of the BOJ
  4. Adachi Seiji
  5. Nakamura Toyoaki
  6. Noguchi Asahi
  7. Nakagawa Junko
  8. Takata Hajime
  9. Tamura Naoki

Subsidiaries and properties

Bank of Japan owns 4.7% of the Tokyo Stock Exchange.[26] Since 2020 it has owned more of the market than any other body.[27]

See also

Notes

  1. ^ Weidner, Jan (2017). "The Organisation and Structure of Central Banks" (PDF). Katalog der Deutschen Nationalbibliothek.
  2. ^ "Home : 日本銀行 Bank of Japan". Bank of Japan. Archived from the original on 2 June 2020. Retrieved 4 August 2019.
  3. ^ a b c Nussbaum, Louis Frédéric. (2005). "Nihon Ginkō" in Japan encyclopedia, p. 708., p. 708, at Google Books
  4. ^ "Guide Map to the Bank of Japan Tokyo Head Office. Archived 2009-06-04 at the Wayback Machine". Bank of Japan. Retrieved 22 December 2009.
  5. ^ Nussbaum, "Banks", Bank of Japan, p. 69, at Google Books.
  6. ^ Vande Walle, Willy et al. "Institutions and ideologies: the modernization of monetary, legal and law enforcement 'regimes' in Japan in the early Meiji-period (1868-1889)" Archived 16 May 2013 at the Wayback Machine (abstract). FRIS/Katholieke Universiteit Leuven, 2007; retrieved 17 October 2012.
  7. ^ Longford, Joseph Henry. (1912). Japan of the Japanese Archived 30 March 2015 at the Wayback Machine, p. 289.
  8. ^ Cargill, Thomas et al. (1997). The political economy of Japanese monetary policy Archived 28 April 2016 at the Wayback Machine, p. 10.
  9. ^ Nussbaum, "Banks", Bank of Japan, p. 70, at Google Books
  10. ^ Cargill, p. 197. Archived 28 April 2016 at the Wayback Machine
  11. ^ Werner, Richard (2002). "Monetary Policy Implementation in Japan: What They Say vs. What they Do", Asian Economic Journal, vol. 16, no. 2, Oxford: Blackwell, pp. 111–151; Werner, Richard (2001). Princes of the Yen Archived 31 March 2015 at the Wayback Machine, Armonk: M. E. Sharpe.
  12. ^ Cargill, p. 19. Archived 28 April 2016 at the Wayback Machine
  13. ^ Horiuchi, Akiyoshi (1993), "Japan" in Chapter 3, "Monetary policies" in Haruhiro Fukui, Peter H. Merkl, Hubrtus Mueller-Groeling and Akio Watanabe (eds), The Politics of Economic Change in Postwar Japan and West Germany, vol. 1, Macroeconomic Conditions and Policy Responses, London: Macmillan. Werner, Richard (2005), New Paradigm in Macroeconomics, London: Macmillan.
  14. ^ See rebuffed requests by the government representatives at BOJ policy board meetings: e.g. "Minutes of the Monetary Policy Meeting on November 30, 2000". Archived from the original on 17 November 2007. Retrieved 9 September 2010. or refusals to increase bond purchases: Bloomberg News. Archived 29 October 2014 at the Wayback Machine
  15. ^ Kuroda Haruhiko(2013)財政金融政策の成功と失敗
  16. ^ "Quantitative and Qualitative Monetary Easing" (PDF). Archived (PDF) from the original on 17 April 2013.
  17. ^ a b "Bank of Japan: Japan Yield Curve Control Regime | Columbia SIPA". www.sipa.columbia.edu. Archived from the original on 22 October 2022. Retrieved 11 February 2022.
  18. ^ Andrew Whiffin (1 April 2019). "BoJ's dominance over ETFs raises concern on distorting influence". Financial Times. Archived from the original on 30 November 2020. Retrieved 25 February 2021. the BoJ was ranked as a top ten shareholder in some 40 per cent of all Japan's listed companies last year, according to Nikkei.
  19. ^ "BOJ Becomes Biggest Japan Stock Owner With $434 Billion Hoard". Bloomberg.com. 6 December 2020. Archived from the original on 17 February 2021. Retrieved 25 February 2021.
  20. ^ "BOJ's ETF buying not distorting markets: Kuroda". Business Times. Reuters. 28 January 2021. Archived from the original on 4 February 2021. Retrieved 25 February 2021.
  21. ^ "Bank of Japan Expands Asset-Purchase Program". The Wall Street Journal. Archived from the original on 16 November 2017. Retrieved 3 August 2017.
  22. ^ Riley, Charles (4 April 2013). "Bank of Japan takes fight to deflation". CNN. Archived from the original on 29 October 2020. Retrieved 2 August 2020.
  23. ^ Stanley White (31 July 2016). "'Helicopter monet' talk takes flight as Bank of Japan runs out of runway". The Japan Times. Reuters. Archived from the original on 4 August 2016. Retrieved 1 August 2016.
  24. ^ Masaoka, Naoichi. (1914). Japan to America, p. 127. Archived 27 April 2016 at the Wayback Machine
  25. ^ "Policy Board : 日本銀行 Bank of Japan". www.boj.or.jp. Archived from the original on 7 April 2018. Retrieved 30 April 2018.
  26. ^ "Bank of Japan to be top shareholder of Japan stocks". Archived from the original on 24 April 2020. Retrieved 20 April 2020.
  27. ^ "BOJ Becomes Biggest Japan Stock Owner With $434 Billion Hoard". Bloomberg.com. 6 December 2020. Retrieved 12 October 2021.

References and further reading

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