The Bank of Japan is the central bank of that country. The Bank of Japan Act lays down the bank’s objectives. These include issuing banknotes and controlling the supply of money, as well as ensuring transactions among banks and financial institutions are conducted smoothly, in such a way that the financial system remains stable.
In addition to this, the Act mandates that any attempts to control the supply of money should have the goal of achieving stable prices, in order to stimulate the development of the national economy.
The bank was established in 1882 following Japan’s Meiji Restoration, like most contemporary Japanese institutions. It issued its first banknotes in 1885 following the passage of the Convertible Bank Note Regulations in May 1884. The bank has functioned continuously from main offices in Tokyo and Osaka since its early stages in the Meiji era.
The policy board of the bank is its highest decision-making body. It sets the fundamental codes for running the bank’s operations, establishes the strategy for currency and monetary control, and ensures that bank executives carry out their duties. The board is comprised of the governor and deputy governors, and six other members. It decides matters relating to monetary policy at regular meetings with published minutes.
In keeping with its charter, the duties of the Bank of Japan are issuance and managing of banknotes, execution of monetary policy, supplying settlement services and ensuring the strength of the financial system, treasury and government securities related operations, global activities and collection of information, analyses and research activities.
The bank also carries out functions in the field of international finance, for example foreign exchange dealings, in addition to business associated with assisting foreign central banks and global organisations in their investment in yen. In addition, the bank takes part in a range of international negotiations with foreign central banks on the condition of the world economy, and ways to ensure the strength of financial markets and to develop their structure.
The Bank of Japan, as the state’s lone ‘issuing bank,’ uses several methods to discourage counterfeiters, and is responsible for ensuring that soiled and damaged banknotes are destroyed. Another major function of the bank is deciding and implementing monetary policy with the aim of maintaining price stability. Price stability is vital since it provides the basis of the nation’s economic activity.
In executing monetary policy, the bank manipulates the formation of interest rates for the purpose of currency and monetary control, through its operational tools, such as money market operations. It lends funds to or purchases money market instruments from financial institutions to keep interest rates low and boost the quantity of money in circulation in order to preserve price stability in times of weak economic activity and deflation.
The bank has been battling the stagnating effects of deflation for the past two decades, and in February 2012 it set a target of raising inflation to one percent. It attempted to do this by pumping tens of billions of dollars into the economy though the purchase of government bonds. During its rapid growth in the 1970s and 1980s, Japan had faced the opposite problem of burgeoning inflation rates.
flickr image by by [Jim]