What is monetary policy, and how is it carried out in Japan?
The Bank of Japan is the nation's central bank of Japan, and carries out currency and monetary control -- monetary policy -- to achieve price stability, thereby contributing to the sound development of the national economy, as stipulated in Articles 1 and 2 of the Bank of Japan Act.
During normal times, the Bank conducts monetary policy by encouraging money market rates to remain at the target level mainly through open market operations. Depending on the circumstances, the Bank may employ other means to conduct monetary policy, such as (1) setting the target at the amount of funds supplied directly by the Bank -- the monetary base, defined as the sum of the outstanding balance of financial institutions' current accounts at the Bank, banknotes in circulation, and coins in circulation -- and controlling the amount to achieve the target; and (2) encouraging longer-term market rates to rise or fall.
