The Bank of Japan (日本銀行) is the central bank of Japan.[3] The bank is often called Nichigin (日銀) for short. It is headquartered in Nihonbashi, Chūō, Tokyo.[4]
The said bank is a corporate entity independent of the Japanese government,[5] and while it is not an administrative organisation of the state, its monetary policy falls within the scope of administration. From a macroeconomic perspective, long-term stability of prices is deemed crucial. However, the political sector tends to favour short-term measures. Thus, the bank's autonomy and independence are granted from the standpoint of ensuring long-term public welfare and political neutrality.[6]
History
Background
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.[7] 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.
Foundation and early development
Finance minister Matsukata Masayoshi initially proposed the creation of the bank of Japan sometime in March 1882, soon enacted in the Bank of Japan Act (Imperial Ordinance) of 1882-6-27 and formally founded on 1882-10-10. The primary source of inspiration for the bank's design was the National Bank of Belgium (est. 1850) which was viewed as one of the best-designed European central banks of its era.[8] Since then, the Bank of Japan has been partly privately owned. Its stock is traded over the counter, hence the stock number.[9] A number of modifications based on other national banks were encompassed within the regulations under which the bank was founded.[10] In 1883, all national banks were stripped of their banknote issuance privilege,[11] and the Bank of Japan was given a monopoly on controlling the money supply in 1884. Still, it would be another 20 years before all previously issued notes were retired.[12]
World War II and aftermath
The Bank of Japan was reorganized in 1942[3][14] (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.[15]
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
Boom and bust cycles
[[File:Japan money supply and inflation.webp|thumb|300px|Japan money supply and inflation (year over year)
]] 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.
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.[31] 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.[32] But by 2016, it was apparent that three years of monetary easing had little effect on deflation so the Bank of Japan instigated a review of its monetary stimulus program.[33]
Operations
Objectives
The comprehensive revision of the Bank of Japan Act in 1998 clearly defined the objectives of the Bank of Japan as 'price stability' and 'financial system stability'. This revision affirmed the Bank's operation independent from the government (primarily the Ministry of Finance), and removed the provisions established in 1942, which had been problematic. The 1942 provision, enacted during the Second World War, stated the objective of the bank was to 'Ensure the Appropriate Exertion of the Nation's Total Economic Power, by Regulating Currency, Adjusting Finance, and Maintaining and Fostering the Credit System in Accordance with the Policies of the State (国家経済総力ノ適切ナル発揮ヲ図ル為国家ノ政策ニ即シ通貨ノ調節、金融ノ調整及信用制度ノ保持育成ニ任ズル.)'.[34]
BoJ's policies are decided at Monetary Policy Meetings (MPM,, 金融政策決定会合), which are attended by the Policy Board and held every other month.[35]
Price stability
Stable prices are maintained by seeking to ensure that price increases meet the inflation target. The bank aims to meet this target primarily by adjusting the base
Buildings
Headquarters
The Tokyo head office building of the BOJ is located in Nihonbashi, Chuo. It is on the site of a former gold mint (Kinza) and, not coincidentally, near the famous Ginza district, whose name means "silver mint". The building was designed by architect Tatsuno Kingo in eclectic style in 1890, and completed in 1896 under the direction of entrepreneur Shibusawa Eiichi.[41] Tatsuno had been influenced by the architecture of the Bank of England and especially of the National Bank of Belgium (NBB)'s buildings in Brussels and Antwerp, paralleling the NBB's influence on the institutional design of the Bank of Japan.[42]
Tatsuno's former engineer and successor as the bank's architect, Nagano Uheiji, directed repairs of the bank's building following the 1923 Great Kantō earthquake.
Leadership
The governor of the Bank of Japan (総裁) has considerable influence on the economic policy of the Japanese government.
List of governors
Monetary Policy Board
As of 20 December 2025, the board responsible for setting monetary policy consisted of the following 9 members:[47]
- 1) Kazuo Ueda, Governor of the BOJ
- 2) Uchida Shinichi, Deputy Governor of the BOJ
- 3) Himino Ryozo, Deputy Governor of the BOJ
- 4) Noguchi Asahi
- 5) Nakagawa Junko
- 6) Takata Hajime
- 7) Tamura Naoki
See also
- Japanese yen
- Economy of Japan
- National Printing Bureau
- Japan Mint
- List of central banks
Further reading
- Bank of Japan. Functions and operations of the Bank of Japan (Institute for Monetary and Economic Studies, 2nd ed. 2012), online
- Cargill, Thomas F., Michael M. Hutchison and Takatoshi Itō. (1997). The political economy of Japanese monetary policy. Cambridge: MIT Press. ISBN 9780262032476; OCLC 502984085
- Hamaoka, Itsuo. A study on the Central Bank of Japan (1902) online
- Longford, Joseph Henry. (1912). Japan of the Japanese. New York: C. Scribner's sons.
- Masaoka, Naoichi. (1914). Japan to America: A Symposium of Papers by Political Leaders and Representative Citizens of Japan on Conditions in Japan and on the Relations Between Japan and the United States. New York: G.P. Putnam's Sons (Japan Society).
- Nussbaum, Louis Frédéric and Käthe Roth. (2005). Japan Encyclopedia. Cambridge: Harvard University Press. ISBN 978-0-674-01753-5; OCLC 48943301
External links
- Building a national currency (1868-99)
- Japan and World Interest Rates, Interest Rates data and chart daily updated by ForexMotion
References
- Jan Weidner. The Organisation and Structure of Central Banks Katalog der Deutschen Nationalbibliothek, 2017, retrieved 14 May 2020^
- Leika Kihara, Makiko Yamazaki. Bank of Japan raises interest rates to 30-year high, signals more hikes Reuters, 18 December 2025^
- Nussbaum, Louis Frédéric. (2005). "Nihon Ginkō" in^