Bank of Japan (BOJ) is the central bank of Japan

With the passing of the Bank of Japan Act in 1882, the Bank of Japan (BOJ) was officially established as the nation’s first central bank and is one of the world’s oldest central banks.

The Bank of Japan was established by Matsukata Masayoshi. As he saw it, the establishment of finance (and the consolidation of inconvertible notes) and the idea of the establishment of a central bank were inseparable. While in charge of local administration in Kyushu immediately after the Meiji Restoration, he fully realized the damage an excessive issue of inconvertible notes could cause.

In 1878, Matsukata, then vice-minister of finance, visited Europe as the assistant general director for the international exhibition in France. He inspected the financial systems of different countries and was advised by the French minister of finance, Leon Say, of the need for a central bank system and for a convertible bank note system. He was advised not to model on the French system, which was very old and would have been difficult to transfer, but to follow the system used by the Belgian National Bank, which had been recently established and for which the experiences of several countries had been considered. Here again, Japan enjoyed the advantages of a late comer.

At the time of the establishment of the Bank of Japan, Matsukata reorganized the existing banks into a tripartite system of commercial banks, with the Bank of Japan as their centre, investment, and savings banks.

Although the Bank of Japan had begun as the core bank of the commercial banks, it became the central institution for industrial financing when, after the first modern economic recession hit Japan in 1890, it began discounting promissory notes, receiving the stocks of 15 sectors, including the railway, sea transportation, and insurance, as security.

The bank’s headquarters are located in Tokyo, however the face of the bank is considered to be the Osaka branch. In the midst of World War II, the Bank of Japan Law (the Law of 1942) replaced the aforementioned act and set new guidelines for the bank. Although several changes were subsequently made to the Bank of Japan Law (many by Allied occupiers), it was only heavily revised in 1997 due to the changes of the global economy. The new law emphasized transparency and increased independence of the bank from the government.

Previously, the lack of independence from the Government was one of the marked differences between the Bank of Japan and other central banks like the Federal Reserve and the European Central Bank. In Japan, the government does have an effect on policy and the Governor of the bank must work together with the Prime Minister in order to be effective, which will ensure that the nation’s monetary policy will fit with the government’s economic policy. While the new legislation provided some separation between the two institutions, they are still linked. For instance, the Bank of Japan’s budget must still be approved by the government. Regardless of the new laws, in order for the bank to achieve its goals, collaboration between the Governor of the bank and the Prime Minister is required. Failure to do so could lead to an ineffective administration, such as the one held by previous Governor Masaru Hayami, who often bickered with the Prime Minister.

Toshihiko Fukui

Toshihiko Fukui’s road to leadership has been bumpy, but on March 20, 2003 he took over the reins of the Bank of Japan from Masaru Hayami. Born in the commercial city of Osaka to an umbrella exporter, Mr. Fukui followed the ‘traditional’ path early in his career. He received a prestigious law degree from the University of Tokyo and eventually joined the Bank in 1958. He served in many different positions before being appointed a deputy governor in 1994.

In fact, he was so successful that he was nicknamed ‘the prince’, implying that he was the heir to the throne of the bank. Unfortunately, in 1998 a scandal involving one of his underlings at the bank surfaced and he was forced to resign as a sign of taking responsibility even though he was not directly involved. After leaving the bank, he became the Vice Chairman of the Keizai Doyukai (the Japan Association of Corporate Executives) and served on the Board of Directors of several large companies. Just five years after leaving the bank he returned and was anointed the leader of one of the world’s largest economies.

The Bank is comprised of a policy board, bank executives, and 15 other various departments. The policy board is the highest decision-making body. Headed by the governor, currently Toshihiko Fukui, and eight deputy governors, the policy board “determines the guidelines for currency and monetary control, sets the basic principles for carrying out the bank’s operations, and oversees the fulfillment of the duties of bank executives, excluding Executive Auditors and Counselors.”

The Bank’s monetary policy is aimed at monitoring price stability and money market operations, and holding Monetary Policy Meetings (MPM) once or twice a month for one or two days. Through money market operations, the Bank alters the amount of funds in the money market, ultimately influencing interest rates in other financial markets. Monetary policy decisions must be passed through a majority vote of the nine members of the policy board during MPMs.

The Bank focuses on stability for financial systems by examining on and off-site financial institutions, acting as a lender in a time of crises, supporting private-sector initiatives, and collaborating with other foreign central banks to prevent the outbreak of international financial crises.

As per international finance, the Bank conducts operations with foreign monetary authorities and international organizations to assist with yen-denominated investments. The international department runs the Center for Monetary Cooperation in Asia (CeMCoA) to further promote monetary cooperation in Asia. Finally the Bank carries out international operations on behalf of the government, such as processing notifications and reports, compiling Japan’s Balance of Payments statistics, and carrying out foreign exchange intervention.

Domestic services relating to the government provided by the Bank include treasury funds and Japanese Government Securities (JGS) services. The Bank accepts deposits from the government as government deposits and issues, registers, and makes payment of principal and interest on JGSs.

By law, the Bank is required to inform most of its policy board decisions to the public in a timely fashion. The Bank must release the minutes and transcripts of MPMs, report to the Diet (Japan’s legislature), and make a formal public announcement regarding the Gyoumu Gaikyo Sho, or the Outline of Business Operations.

With over 32 branches (quite a few overseas), the Bank of Japan holds a high status in a country that values respect and innovation. The main headquarters is located in Tokyo, where it sits on a historical throne. It was established as a result of the Bank of Japan Act of 1882, and is run by a group of individuals known as "The Policy Board."As a "central" bank, if is more interested in the position of Japanese currency than anything else.
The Bank of Japan has to hold both foreign exchange reserves(through the issuing of government bonds) and gold reserves, in order that their currency is traded effectively. It also oversees the exchange rates, managing some while allowing others to free float (change with the market). Still other exchange rates are influenced on a small level, bringing a cross between a managed/free rate, which is sometimes called a "dirty float."

The chief of the bank has considerable influence on the economic policy of the Japanese government. Toshihiko Fukui replaced Masaru Hayami as the governor of the Bank of Japan since March 2003.

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)