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Home  >  Fundamental analysis  >  Central banks  >  Bank of Japan (BOJ)

Bank of Japan (BOJ)

The bank of Japan (BOJ) was established in 1882 with the Bank of Japan act and since then has served not only as the central bank of Japan but also as one of the oldest central banks in the world.

Matsukata Masayoshi, credited with establishing the Bank of Japan felt that laying the groundwork of finance, through the consolidation of inconvertible notes, and the idea of a central bank were best served joined together. The potential that a large issuing of inconvertible notes could have was realized by Masayoshi once he was head of the local administrators in Kyushu shortly after the Meiji Restoration.

It all started in 1878 when Masayoshi who at the time was Japan's vice-minister of finance traveled to Europe where it was his duty to investigate financial systems of various countries. Acting as the assistant general director for the international exhibition being held in France, Masayoshi received great counsel from Leon Say, then the financial minister of France. Say imparted on Masayoshi both the importance of a central bank system as well as a convertible bank note system. Say further guided him explaining that he should model his system based on the Belgian national bank which was modern rather than the French system which was outdated. The Japanese listened and would take advantage of other countries setting an effective template for them.

When the Bank of Japan was established as the center bank, Masayoshi re-partitioned any existing banks into a system of commercial banks into three parts with investment and savings banks on either side of the Bank of Japan which took the center stage.

Despite the fact that the banks beginnings had it pitted as the core bank of all commercial banks, its role quickly changed in 1890 following the first recession that hit Japan transforming it into the central institution for industrial financing. As such it began discounting promissory notes and in doing so began to receive stocks from Japan railways, Japanese insurance, and Japanese sea transportation as compensated security.

The heart of the Bank of Japan is considered to be in Osaka despite having its headquarters situated in Tokyo. The bank's guidelines have rarely changed with the exception of two times. The first time was in 1942 in the middle of World War II when occupiers of the alliance established new policies and guidelines which replaced the original ones of 1882. Guidelines were not revised again until 1997 when changes in the global economy forced changes. These new guidelines of 1997 promoted transparency and thus gave the bank greater independence from the government.

Prior to the new guidelines set into place in 1997, The bank of Japan's dependence on the government was what made it unique when compared to other central banks such as the Federal Reserve and the European Central bank. The Government of Japan had a significant effect on bank practices thus it was imperative that the two institutions co-operate to insure the bank's policies were compatible with the economic policies of the government. Even after 1997 when the two institutions slightly separated it was still imperative that the bank and government still maintain some links. One of the reasons is that the bank of Japan's budget requires the approval of the government. When relations between the two institutions were sour, such as then the governor was Masaru Hayami, the administration often suffered thus proving the importance of co-operation between the governor of the bank and the prime minister of Japan.

Let us take a moment to discuss current bank governor Toshihiko Fukui

On March 20, 2003 Toshihiko Fukui became the governor of the bank of Japan, taking over from Masaru Hayami. Born in Osaka, Fukui went on to receive a degree in law from the university of Tokyo. He first started working at the bank in 1958 and followed a steady path working his way up the ladder until he was finally appointed a deputy governor in 1994.

Fukui was doing such a good job that he became known as the prince, for the reason that everyone believed that he was next in line to be the governor of the bank. Everything was going well until in 1998 a scandal emerged. Even though the scandal did not involve him directly, it involved someone he was responsible for. Taking responsibility Fukui was left with no other choice than to resign. Upon resigning, Fukui was appointed vice chairman of the Japan Association of Corporate Executives, referred to in Japan as Keizai Doyukai. He was successful on the board of directors of several large companies and as such he was brought back to the bank 5 short years later as the governor of the Bank of Japan.

The bank of Japan is comprised of several departments including the policy board, bank executives and 15 other important departments. The highest decision making body, headed by Fukui and his eight deputy governors is the policy board. Fukui and his board are responsible for setting out guidelines for controlling the currency as well as determining policies for executing the bank's operations and supervising bank executives with the exception of Executive Auditors and Counselors.

Important goals of the Bank of Japan's monetary policy are to monitor money market operations, price stability and to discuss these matters at Monetary Policy Meetings monthly or bimonthly. Money market operations are important because they have the power to change how much funds are in the money market which will have an effect on interest rates in other financial markets. Since Monetary policy decision have potential to have large impacts, they must be approved by a majority vote of the nine members of the board.

The bank enforces stability for financial systems through various means. These means include means such as: Lending money in times of crises, inspecting financial institutions, supporting private sectors, and co-operating with central banks of other nations to insure international financial crises do no occur.

With regards to international finance the Bank of Japan is very active engaging in operations with international organizations and foreign monetary authorities to help investments made in denominations of the Yen. The Center for Monetary Cooperation in Asia, also known as the CeMCoA, is handled by the international department and is aimed at facilitating even more collaboration of monetary institutions in Asia. One last important duty of the Bank of Japan is that it handles international functions on the governments behalf. Examples of these functions are intervening in foreign exchange, collecting statistics of Japan's Balance of Payments as well as processing reports and notifications.

The Bank of Japan provides the government with several domestic services such as Japanese Government services (JGS) and treasury funds. The government deposits into the bank as well as issues, registers and makes principle and interest payments on JGSs.

The bank of Japan is required by law to keep the public informed of all policy board decisions in a reasonable time frame. All the minutes, and transcripts taken at the meetings must be released. In addition the bank must give the Japanese legislature (known as the Diet) a report and formally announce any changes that have to do with the Gyoumu Gaikyo Sho or changes in the structure of business operations. This is noted on the Bank of Japan website.

The bank of Japan was established back in 1882 with the Bank of Japan Act. Since then the bank has grown to become one of Japan's most respected. With its headquarters in Tokyo, the bank of Japan can boast 32 additional branches several of them located overseas. Directed by a small group of individuals known as the Policy board it acts as a central bank and is mostly interested in the condition of the Japanese economy. In order for the Yen to be traded efficiently, the Bank of Japan possesses gold reserves in addition to foreign exchange reserves which it does through the issuing of government bonds. Exchange rates are also supervised by the bank which allows some to fluctuate with the market while controlling others more closely. The bank also manipulates some other exchange rates albeit on tiny levels thus creating a hybrid between a managed and free rate known commonly as a dirty float.

Toshihiko Fukui was given the position of the governor of the Bank of Japan in March 2003 taking over for Masaru Hayami who clashed with the Prime Minister. Fukui, as leader of the bank has a significant amount of influence over the Japanese government's economic policies.

Former governors

  • Mr. Shigetoshi Yoshihara (6 Oct 1882 19 Dec 1887)
  • Mr. Tetsunosuke Tomita (21 Feb 1888 3 Sep 1889)
  • Mr. Koichiro Kawada (3 Sep 1889 7 Nov 1896)
  • Baron Yanosuke Iwasaki (11 Nov 1896 20 Oct 1898)
  • Mr. Tatsuo Yamamoto (20 Oct 1898 19 Oct 1903)
  • Baron Shigeyoshi Matsuo (20 Oct 1903 1 Jun 1911)
  • Mr. Korekiyo Takahashi (1 Jun 1911 20 Feb 1913)
  • Viscount Yataro Mishima (28 Feb 1913 7 Mar 1919)
  • Mr. Junnosuke Inoue (13 Mar 1919 2 Sep 1923)
  • Mr. Otohiko Ichiki (5 Sep 1923 10 May 1927)
  • Mr. Junnosuke Inoue - second term (10 May 1927 1 Jun 1928)
  • Mr. Hisaakira Hijikata (12 Jun 1928 4 Jun 1935)
  • Mr. Eigo Fukai (4 Jun 1935 9 Feb 1937)
  • Mr. Seihin Ikeda (9 Feb 1937 27 Jul 1937)
  • Mr. Toyotaro Yuki (27 Jul 1937 18 Mar 1944)
  • Viscount Keizo Shibusawa (18 Mar 1944 9 Oct 1945)
  • Mr. Eikichi Araki (9 Oct 1945 1 Jun 1946)
  • Mr. Hisato Ichimada (1 Jun 1946 10 Dec 1954)
  • Mr. Eikichi Araki - second term (11 Dec 1954 30 Nov 1956)
  • Mr. Masamichi Yamagiwa (30 Nov 1956 17 Dec 1964)
  • Mr. Makoto Usami (17 Dec 1964 16 Dec 1969)
  • Mr. Tadashi Sasaki (17 Dec 1969 16 Dec 1974)
  • Mr. Teiichiro Morinaga (17 Dec 1974 16 Dec 1979)
  • Mr. Haruo Mayekawa (17 Dec 1979 16 Dec 1984)
  • Mr. Satoshi Sumita (17 Dec 1984 16 Dec 1989)
  • Mr. Yasushi Mieno (17 Dec 1989 16 Dec 1994)
  • Mr. Yasuo Matsushita (17 Dec 1994 20 Mar 1998)
  • Mr. Masaru Hayami (20 Mar 1998 19 Mar 2003)
  • Mr. Toshihiko Fukui (20 Mar 2003 present)
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