^*An advisory panel to the Prime Minister

November 12, 1996
Bank of Japan

1. Today, the Central Bank Study Group "CBSG" submitted a report entitled "Reform of the Central Bank System--In Pursuit of 'Open Independence'" to the Prime Minister. The Bank of Japan highly appreciates the report as it presents basic principles for establishing a central bank capable of becoming the nucleus of the financial system in the 21st century as well as clarifies a direction of reform of the Bank of Law and the related institutional framework. The Bank of Japan, as the beneficiary of the basic principles laid out in the report, would like to express sincere gratitude to Chairman Torii and the other members of the CBSG for their intensive discussions since last July.

2. The Bank of Japan strongly hopes that restructuring of the institutional framework related to the central bank including the revision of the Bank of Japan Law shall be promptly implemented based on principles presented in the CBSG report. While some specific issues regarding the implementation are still left for further study, two fundamental concepts presented by the CBSG, that is, "independence" and "transparency," should be fully respected in the course of the study. The Bank of Japan is determined to actively contribute to this process.

3. The CBSG report expects that the Bank of Japan make continuous efforts to further improve its policy making and business operations. With this in mind, the Policy Board decided in its special meeting today that the Bank of Japan would review its policy making and business operations as attached.

4. A new central bank system can never be designed without taking due account of the economic and social environments in Japan. At the same time, in order for the system to be well suited to the era of marketization and globalization, it is also essential that it be constructed consistently with concepts and ideas found in the recent restructuring of central banks of major developed countries.
In this regard, the Bank of Japan is determined to advance the restructuring process aggressively in order to gain higher credibility from the public and markets.
The Bank of Japan would like to seek understanding and cooperation of all parties concerned.

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· Restructuring of Policy Making and Business Operations

The Bank of Japan, in response to the publication of the report of the Central Bank Study Group, shall initiate a review of existing procedures with respect to its policy making and business operations focusing on the following points. The review will be carried out simultaneously with the reform of the legal and institutional frameworks, and will be completed by next spring.

1.Periodic Policy Board Meeting for Monetary Policy Decision
The Policy Board will periodically meet to make overall reviews on monetary policy, including reviews on the official discount rate and market operations.
While periodic meetings aim at preventing disturbing market fluctuations caused by speculations regarding the timing of policy actions, the timeliness of decision making should not be sacrificed. Therefore, the Bank of Japan shall study the details, including at what intervals the Board meetings will be convened, with consideration to business rules and practices in the Japanese financial markets and the experiences in foreign countries.

2.Publication of Summary Discussions at Policy Board Meetings for Monetary Policy Decision
The summary discussions at the said periodic Policy Board meetings shall be made public in order to enhance transparency of the decision making process.
The Bank of Japan shall further study the details, including the timing and scope of the publication of the summary.

3.On-site Examinations
The CBSG report stated that it would be desirable to establish a statutory basis for the Bank of Japan's on-site examinations of financial institutions to clarify the scope of its business operations.
On-site examinations are conducted based on voluntary cooperation of financial institutions. The statutory basis would not alter this fundamental characteristic of the examinations. The Bank of Japan shall study how to enableon-site examinations to keep up with developments in the financial markets with due regard to the CBSG report which stated that they should not unnecessarily duplicate inspections by government agencies.

4.Payment and Settlement Services
As confirmed in the CBSG report, one of the inherent roles of the central bank is to ensure efficient and smooth operations of payment and settlement systems.
In this regard, in order to reduce risks in the Japanese payment systems centered around the reserve settlements at the central bank, the Bank of Japan shall consult with market participants on various measures including enhanced use of real-time gross settlement.

5.Operational and Organizational Management
The Bank of Japan shall be required to make swift decisions on operational and organizational management in order to properly respond to changing circumstances such as a move to marketization and globalization. For this purpose, it is essential that the Bank of Japan's autonomy in the management be secured.
On the other hand, the Bank of Japan duly recognizes that it should continue efforts to make its operational and organizational management efficient and rational. While the Bank of Japan has endeavored to achieve this goal, it is determined to make further efforts. The Bank of Japan shall also review ethical discipline applied to the management and staff.

6.Adjustment to Advanced Information Technology
While the Bank of Japan has explained policy backgrounds through various methods, the central bank, in the era of marketization and advanced information technology should make extra efforts in this aspect. The Bank of Japan, in addition to the further study on methods to explain policy backgrounds including publication of summary discussions, shall utilize for public relations new media which embody state-of-art information technology, such as the Internet, both for receiving and disseminating information.