QuestionWhat are the Bank's business operations?
To achieve the two objectives of price stability and financial system stability, the Bank conducts a range of business operations. The following gives an overview of these operations.
As the sole issuer of banknotes in Japan (Bank of Japan notes), the Bank issues banknotes and ensures the stability of banknote supply by receiving and paying banknotes from/to financial institutions. It also conducts operations to ensure public confidence in banknotes, by counting and verifying banknotes it receives from financial institutions and checking their fitness for recirculation.
The Bank accepts deposits from financial institutions that hold current accounts at the Bank -- Bank of Japan (BOJ) account deposits -- and provides a system to settle interbank transactions by means of funds transfers between BOJ accounts. It also operates the Japanese government bond (JGB) Book-Entry System for settlement of Japanese government securities (JGSs). With this system, the delivery of JGSs is carried out through the transfer between accounts on the books.
In addition to working to enhance its systems and methods of payment and settlement, the Bank monitors and assesses the payment and settlement systems provided by other institutions, and encourages these institutions to improve their systems.
The Bank decides and implements monetary policy with the aim of maintaining price stability. Monetary policy influences firms' and individuals' investment and consumption behavior, and thus it also affects economic and price developments at the macro level. To this end, the Bank influences the formation of interest rates in financial markets and financial institutions' lending rates, by means of its operational instruments, such as open market operations. At Monetary Policy Meetings (MPMs) held regularly by the Policy Board, members discuss the economic and financial situation, and decide matters regarding the conduct of monetary policy, including the guideline for market operations for the intermeeting period.
After every MPM, the Bank releases the guideline for market operations for the intermeeting period and other decisions, its assessment of economic activity and prices, and its thinking behind the future conduct of monetary policy. Based on the guideline, the Bank sets the amount of daily market operations and chooses types of operational instruments to provide and absorb funds in the market.
The Bank aims to ensure a state in which the financial system -- the structure of receipt and payment as well as the lending and borrowing of money -- functions properly and participants such as firms and individuals have confidence in the system. To this end, the Bank assesses the conditions of financial institutions that are BOJ account holders -- in terms of business operations, risk management, and capital adequacy as well as profitability -- and encourages them to maintain or improve the soundness of their management. The Bank also employs a macroprudential perspective, from which it, for example, analyzes and assesses risks in the financial system as a whole.
In addition, in its role as the lender of last resort, the Bank provides liquidity when necessary to financial institutions that are experiencing a temporary shortage of funds. This is to avert the possibility that such factors as the bankruptcy of a financial institution will pose risks to other financial institutions, other markets, or ultimately the entire financial system, through a chain of disruptions or dysfunctions.
The Bank provides services relating to treasury funds and JGSs, and engages in transactions with the government.
For treasury funds, the Bank provides services such as (1) receipt, disbursement, and accounting of treasury funds; (2) management of the deposits of the government; and (3) custody of securities acquired by or submitted to the government.
For JGSs, the Bank provides services such as (1) issuance of JGSs, (2) book-entry transfer of JGSs, and (3) principal and interest payments on JGSs.
The Bank also engages in various transactions with the government, such as purchasing and selling of JGSs.
The Bank conducts operations in the field of international finance, such as foreign exchange transactions, as well as business related to assisting foreign central banks and international organizations in their investment in yen. The Bank participates in a range of forums and takes part in international discussions with other central banks on the state of the world economy, and in measures to ensure the stability of financial markets and to improve their structure. The Bank also carries out international operations on behalf of the government, such as processing of notifications and reports required under the Foreign Exchange and Foreign Trade Act, and conducting foreign exchange intervention, based on instructions from the minister of finance.
In addition to the above operations, the Bank conducts research and studies on financial and economic issues, compiles and releases statistics as well as reviews the compilation procedures for its statistics, and engages in public relations activities.
The Bank sets the basic direction for its business operations and organizational management in the Bank of Japan's Medium-Term Strategic Plan. The Bank explains to the public the implementation of its business operations for each fiscal year through the release of the Annual Review, which is based on the Japanese original Gyoumu Gaikyo Sho (Outline of Business Operations).