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Annual Review 2012

August 31, 2012
Bank of Japan

The Annual Review 2012 provides an overview of the Bank of Japan's organization and business operations, a review of its implementation of business operations and organizational management in fiscal 2011 (April 1, 2011-March 31, 2012), and a description of the Bank's accounts for the fiscal year.

Contents

  • Foreword by the Governor
  • About the Bank of Japan
    • I. Core Purposes
    • II. Capital
    • III. The Bank's Officers
    • IV. Organization
  • The Bank's Business Operations
    • I. Monetary Policy
    • II. Financial System Policy
    • III. Enhancement of Payment and Settlement Systems and Market Infrastructure
    • IV. International Operations
    • V. Issuance, Circulation, and Maintenance of Banknotes
    • VI. Services Relating to the Government
    • VII. Communication with the Public
  • The Bank's Review of Fiscal 2011
    • I. Introduction
    • II. Review of Economic and Financial Developments
    • III. The Bank's Response to the Great East Japan Earthquake
    • IV. Progress in Addressing Issues and Implementing Action Plans
  • The Bank's Organizational Management in Fiscal 2011
    • I. Settlement of Accounts and Budget for Expenses
    • II. IT Investment
    • III. Human Resources
    • IV. Organizational Management Measures Implemented in Fiscal 2011
    • V. Internal Audits
  • The Bank's Accounts: Financial Statements and Other Documents for Fiscal 2011
    • I. Assets and Liabilities, Profits and Losses, and Capital Adequacy Ratio
    • II. Financial Statements
    • III. Schedule for the Financial Statements
    • IV. Expenses
  • Appendixes
    • Appendix 1: Overview of Audits of the Bank of Japan
    • Appendix 2: The Bank of Japan's Strategic Priorities for Fiscal 2012-2014

Foreword by the Governor

The Annual Review is based on the Japanese original of the Gyoumu Gaikyo Sho (Outline of Business Operations), which is prepared pursuant to Article 55 of the Bank of Japan Act. The Japanese original and the Annual Review 2012 have been drawn up and released to explain to readers the implementation of the Bank's business operations during fiscal 2011.

The fiscal year got off to a demanding start with the significant task of restoration and rebuilding following the Great East Japan Earthquake of March 11, 2011. The Bank expended every effort to produce the necessary response to the various challenges posed by the earthquake and its aftermath, making full use of its functions as central bank.

Following the earthquake, the Bank exerted every possible effort to provide cash to the disaster-stricken areas and to ensure the stable operation of payment and settlement systems; it also provided ample funds for several successive days to financial markets. Moreover, the Bank further enhanced monetary easing by increasing the size of the Asset Purchase Program, mainly by increasing purchases of risk assets, and introduced the funds-supplying operation to support financial institutions in the disaster-stricken areas in their efforts to meet the demand for funds for restoration and rebuilding. The Bank also spared no efforts in providing services to meet demand for the exchange of damaged banknotes and coins in the disaster-stricken areas as well as providing treasury funds services and Japanese government securities services to supplement those offered by damaged financial institutions.

Japan's economy continued to face strong downward pressure for a period during the first half of the fiscal year, mainly on the production side due in part to disruptions to production facilities and supply chains caused by the disaster. The economy subsequently picked up as the supply-side constraints eased, but entered a lull in the second half of the year, remaining more or less flat, mainly due to the effects of the slowdown in overseas economies and the appreciation of the yen against the background of the European debt problem.

In view of such developments, the Bank of Japan continued consistently to contribute as the central bank throughout the year in order for Japan's economy to overcome deflation and return to a sustainable growth path with price stability, through the three-pronged approach of pursuing powerful monetary easing via its comprehensive monetary easing measures, ensuring financial market stability, and providing support to strengthen the foundations for economic growth. In February 2012, the Bank introduced "the price stability goal in the medium to long term," clarifying the inflation rate which the Bank's monetary policy aims to achieve. The Bank stated that for the time being it would aim to achieve the goal of a year-on-year rate of increase in the consumer price index (CPI) of 1 percent, and that, until it judged this goal to be in sight, it would pursue it through powerful monetary easing, by conducting its virtually zero interest rate policy and purchasing mainly financial assets as part of the Asset Purchase Program. In its pursuit of the above, the Bank will verify that there is no significant risk to the sustainability of economic growth, such as from the accumulation of financial imbalances.

With regard to the financial system, the Bank ensured that it maintained an accurate grasp of business conditions at financial institutions, while strengthening the feedback between its on-site examinations and off-site monitoring. It also further refined its methods for analyzing the financial system and assessing its stability, taking a macroprudential perspective -- assessing risks in the financial system as a whole -- and paying due attention to the interconnectedness of the real economy, financial markets, and the behavior of financial institutions. Moreover, the Bank played an active role in international discussions on issues relevant to ensuring the stability of the global financial system in the wake of the global financial crisis of autumn 2008.

During fiscal 2011, the Bank worked to enhance the safety and efficiency of Japan's payment and settlement systems through, for example, the construction of the new Bank of Japan Financial Network System (BOJ-NET). It also worked to enhance market infrastructure to improve the functioning of financial markets. The Bank supported economic and financial activities in Japan through its steady execution of other central banking business operations such as the issuance, circulation, and maintenance of banknotes, as well as operations related to treasury funds and Japanese government securities, including those carried out in response to the disaster. At the same time, the Bank took advantage of various opportunities to provide the public with a clear explanation of its efforts across these wide-ranging areas.

The above business operations are conducted in line with the Bank's Strategic Priorities, which have a rolling three-year horizon. The Bank maintains a medium-term perspective and updates the Strategic Priorities at the end of every fiscal year to respond to any changes in circumstances in a flexible and timely manner. During fiscal 2011, the Bank followed the Strategic Priorities in implementing various action plans, including those in response to the disaster. Working within such frameworks and making use of the lessons learned from reflecting on the Bank's experiences and response during and after the earthquake, the Bank will continue to make efforts as the country's central bank toward the sustainable growth and development of Japan's economy.

Masaaki Shirakawa
Governor of the Bank of Japan