Bank of Japan (BOJ): Role, Functions & Economic Impact

What Is the Bank of Japan (BOJ)?

The Bank of Japan, (BOJ) is headquartered in the Nihonbashi business district in Tokyo. The BOJ is the Japanese central bank, which is responsible for issuing and handling currency and treasury securities, implementing monetary policy, maintaining the stability of the Japanese financial system, and providing settling and clearing services. Like most central banks, the BOJ also compiles and aggregates economic data and produces economic research and analysis.

Key Takeaways

• The Bank of Japan, or BOJ, is Japan's central bank; it has been operational since 1885—when it first issued currency.
• The BOJ is responsible for determining monetary policy, setting interest rates, and issuing and monitoring currency and treasury securities.
• The Bank of Japan also compiles economic data, conducts research and analysis, and makes the information available to the public. 

Understanding the Bank of Japan (BOJ)

The Bank of Japan issued its first currency notes in 1885 and, with the exception of a brief period following the Second World War, it has operated continuously ever since. The bank's headquarters in Nihonbashi is located on the site of a historic gold mint, which is located close to the city's Ginza, or "silver mint," district.

Organization of the Bank of Japan

The bank is headed by the governor, who was Haruhiko Kuroda as of November 2020. Kuroda was nominated in 2013, was the 31st governor of the BOJ, and was formerly the President of the Asian Development Bank. He was nominated for a new five-year term in February 2018. Kuroda is an advocate of looser monetary policy.

There are also two deputy governors, six members of the policy board, three or few auditors, "a few" counselors, and six executive directors heading the BOJ. All of these officers belong to the bank's Policy Board, which is the Bank's decision-making body. The Board sets currency and monetary controls, the basic principles for the Bank's operations, and oversees the duties of the Bank's officers, excluding auditors and counselors. The Policy Board includes the governor and the deputy governors, auditors, executive directors, and counselors.

There are 15 departments at the Bank's head office, 32 branches, and 14 local offices.

Monetary Policy

The Bank of Japan decides and implements monetary policy to maintain price stability. The Bank manipulates interest rates for the purpose of currency and monetary control using operational instruments, such as money market operations. Monetary policy is decided by the Policy Board at Monetary Policy Meetings (MPMs). At MPMs, the Policy Board discusses the nation's economic and financial situation, sets the guidelines for money market operations, and the Bank's monetary policy stance for the immediate future.

MPMs are held eight times a year for two days. Monetary policy decisions are made by a majority vote of the nine members of the Policy Board, which consists of the Governor, the two Deputy Governors, and the six other members. The bank uses in-depth research and analysis on economic and financial conditions when deciding monetary policy.

Independence and Transparency

The BOJ immediately releases its decisions on monetary policy after each MPM. The bank also holds regular press conferences by the chair of the Policy Board — the Governor — to explain monetary policy decisions. The Bank also releases the Summary of Opinions at each MPM and the minutes of MPMs. The bank also releases its transcripts 10 years later to provide transparency regarding Policy Board decisions.