The Bank of Japan fulfills the functions of the central bank of Japan. 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. 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 Bank is capitalized at 100 million yen in accordance with the Act. The bank is similar to the securities company: it emits certificates for its capital, with a share for about 55 percent subscribed by the government while the owners of the remaining certificates are supposed to be non-state market participants. Certificates for owning shares of the bank’s capital can be sold or offered as a pledge. The bank’s capital shareholders can receive stock dividends in coordination with the ministry of finance.
The bank is independent in its activities from the government but is supposed to exchange notes concerning monetary policy and coordinate its actions.
Bank of Japan main duties
As a central bank, the bank of Japan takes decisions and implements monetary policy in order to support the price stability.
Price stability is very important since it provides the basis for the country’s economic activity.
While implementing the monetary policy the Bank influences the interest rates level by means of currency market trading.
The monetary and credit policy’s main positions are determined by the Political council at the meetings dedicated to the monetary policy.
At such meetings the Council discusses the economic and financial situation in the country, approves the currency trading plan for the near future and also announces its decisions immediately after the meeting is completed.
Monetary policy tools:
For the purpose of monetary and credit policy in the country the Bank of Japan fixes the overnight rate. As a rule, overnight credit has its term of instituting and placing credit recourses for one day. Target interest rate for overnight credits is the level of the rate desirable for the Bank of Japan as the average rate on the market of short term deposits. Overnight credit rate is the main interest rate in Japan. Bank of Japan has an effect on this rate by means of operations with state securities. This interest rate has the value of less than one percent and fluctuates at the level of tenth. The last change of target rate level was completed on October 5, 2010 when the Bank of Japan minimized it within the range of 0.0-0.1 %.
Among other banks the Central Bank of Japan fixes the reserve ratio for commercial banks (% to the value of on-demand deposits), and then changes its value depending on the desired objectives. If the reserve norm is increased, the commercial bank cuts the money supply, shortens the loan periods and ceases the renewals. If the reserve norm goes down, the money supply increases. Commercial banks try to maximally increase the issuing of loans using available spare money.
- Program of liquidity injections
In April of 2013 Bank of Japan substituted the base overnight interest rate in terms of the main guideline of monetary and credit policy towards direct targeting of money stock, which will increase for 60-70 trillion yen ($600-700 billion) per year. Therefore the money stock will double in the next 2 years and will be 270 trillion yen by the end of 2014. Meanwhile the volume of state securities purchase make 7 trillion yen per month.
Bank of Japan has inclusive rights of issuing banknotes in circulation. The bank creates the design, manufactures and exchanges old banknotes. The main currency unit in Japan is Yen, it circulates in Japan as well as all over the world as one of the reserve currencies. After dollar and euro, it is considered to be the third popular currency in the world.
The Bank of Japan’s mission is to provide the price stability or in other words create economic conditions that prevent both inflation and deflation. Bank of Japan controls total money volume in economics as well as the level of rates on a daily basis by means of money market operations i.e. operations of sale and repurchase using the money market tools, such as Japan government bonds with private financial institutions. Bank of Japan policy is directed on price stability, i.e. supporting stable economic development, as the main idea of monetary policy.
According to its position in the crediting system the central bank plays the role of “bank of banks” i.e. holds obligatory reserves of commercial banks and other institutions, granting them loans, acts as “lender of last resort”, organizes national settlement system either directly through its departments of through special clearing houses.
Open market operations (OMO) represent the central bank activities of purchasing and selling state securities on the open market. The Bank of Japan uses open market operations as the main tool of executing monetary and crediting policy. In this case the principle target is the control over short-term interest rates and money stock volume in order to influence money stock.
The Bank of Japan conducts international operations, including money market interventions Forex, making international treaties and other international financial transactions.
For the purpose of monetary and credit policy, the bank of Japan is supposed to have appropriate understanding of economic and financial conditions in Japan. In this regard the Bank of Japan studies different statistical data and publishes information concerning the price index of corporate banking. The bank is also governed by regular business activities overview better known as Tankan.
Structurally the Bank is composed of 15 main committees and subdivisions although they are not responsible for adopting any essential decisions. The Bank directors monitor them. It includes the complete staff of Political Council, three auditors, appointed by the Cabinet, six members of the board and ten consultants. Members of the board and consultants are appointed by the Minister of Finance upon the recommendation of Political Council. The number of auditors, members of the board and consultants can be less than listed.
The Bank‘s highest decision-making body determines the guideline for currency and monetary control, and sets the basic principles for carrying out the Bank's operations. It consists of 9 members: governor, two deputy governors and six counselors. All members of the board are appointed by the Ministry with the approval of both Houses of the Parliament for the term of 5 years. The board elects the chairman among its members.
Presently the Bank’s Governor is Haruhiko Kuroda who exercises general control over the Bank's business.
- Secretariat of the Policy Board
- Internal Auditors' Office
- Monetary Affairs Department
- Financial System and Bank Examination Department
- Payment and Settlement Systems Department
- Financial Markets Department
- Research and Statistics Department
- International Department
- Currency Issue Department
- Operations Department
- Information System Services Department
- Public Relations Department
- Personnel and Corporate Affairs Department
- Administration Department
- Institute for Monetary and Economic Studies
- January 20-21
- March 18-19
- April 27-28
- June 15-16
- July 21-22
- September 16-17
- October 28-29
- December 17-18