Bank of Japan

Like other central banks, the Bank of Japan's primary goal is to maintain price stability of the financial system to provide the foundations for sound economic growth. Unlike other central banks, the Bank of Japan has been fighting deflation — falling prices — rather than keeping a lid on price increases or inflation. Many have suggested that the setting of an inflation target could help pull the economy out of the continuing deflationary spiral, but the Bank disagrees.

The Bank of Japan is zealous in protecting its recently won independence from control by the Ministry of Finance. There had been continual friction between the Bank and the Finance Ministry but that has eased since Toshihiko Fukui has become governor of the BoJ. The Bank vowed that they would maintain the zero interest rate policy until deflation as measured by the national core CPI is banished from the economy.

There are nine members of the monetary policy board, which includes the governor and two deputy governors of the bank. Toshihiko Fukui succeeded Massaru Hayami as Bank of Japan governor in March 2003. The term of governor Fukui along with his two deputies ends in March 2008. The current political split in Japan’s diet could be perilous for the Bank when it comes to selecting the new governor. Unlike their overseas counterparts, the monetary policy board generally meets every 2 1/2 to four weeks.

The Bank of Japan has been maintaining an interest rate of 0.5 percent since February 2007. However, the government remains opposed to further moves and continues to try to pressure the BoJ before each Monetary Policy Committee meeting. They fear that it would hurt the country’s economic recovery as well as increase financing costs for the huge government debt. The BoJ in turn is eager to normalize interest rate policies.

The most closely watched Japanese indicator next to the CPI these days is the Tankan Survey, which measures in detail the sentiment in industry in Japan. Originally created to help the Bank of Japan in its decision making, the Tankan is followed worldwide as a barometer of Japan’s economic health.