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QuestionWhat does independence mean for the Bank?
The Bank of Japan Act (hereafter the Act) stipulates that, with regard to the Bank's monetary policy independence, the Bank's autonomy regarding currency and monetary control shall be respected (Article 3, paragraph 1). The Act also stipulates, with regard to the autonomy of the Bank's business operations that due consideration shall be given to the autonomy of the Bank's business operations (Article 5, paragraph 2).
Monetary Policy Independence
The past experience of other countries shows that central banks conducting monetary policy tend to come under pressure to adopt easing policies. Unless price stability is secured, the economy as a whole could cease to function properly.
In order to prevent such a situation, it is now common international practice that monetary policy be conducted by a central bank that is neutral and independent from the government, and equipped with requisite expertise.
Based on this idea, the Bank's monetary policy independence is secured under the Act.
At the same time, to ensure that the Bank's monetary policy and the basic stance of the government's economic policy are compatible, the Act stipulates that the Bank shall always maintain close contact with the government and exchange views sufficiently (Article 4). As an institutional framework for this purpose, the Act stipulates that representatives of the government may, when necessary, attend the meetings of the Policy Board during which monetary policy is decided (Monetary Policy Meetings), and express their opinions, submit proposals, and request that the Board postpone a vote on proposals until the next Policy Board meeting (Article 19, paragraphs 1 and 2).
Autonomy of the Bank's Business Operations
The Bank's monetary policy is conducted through its daily business operations such as open market operations. In that sense, the conduct of monetary policy and daily business operations are closely related. Thus, in order to secure monetary policy independence, the autonomy of business operations is essential. This is why it is stated in the Act that consideration should be given to such autonomy.
Specifically, under the former Bank of Japan Act, the government's authority to supervise the Bank was broad ranging, but this was largely changed with the revision of the Act in 1998. The government's authority is now limited to checking whether the Bank's actions are pursuant to laws and regulations. The budget for expenses necessary to perform the Bank's operations and organizational management requires approval by the Minister of Finance. However, in consideration of the Bank's autonomy, the areas of business operations subject to approval by the Minister have been limited and transparency is secured in the process of such approval.