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Everything You Need To Know About The Bank Of Japan

The Bank of Japan has always received a lot of attention for its unusual monetary policies. Its interest rate announcements have the potential to move markets such as the Yen, Nikkei 225 and big Japanese stocks.

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank – the country’s equivalent of the Bank of England or Federal Reserve. Often called Nichigin for short, the bank is responsible for issuing and handling all currency and treasury security matters, creating economic security through monetary policy and providing settlement services.

Bank of Japan structure

The Bank of Japan was established in 1882 – issuing its first bank note in 1885 – and has operated ever since. The Bank was reorganised during World War II to regulate and maintain the national economy in wartime. After WW2, there were several adjustments made to the BoJ’s structure.

Currently, there are three main components to the Bank’s structure:

  1. The Policy Board – the highest decision-making body in the BoJ, in charge of setting currency and monetary policy and overseeing the Bank’s operations. There are nine people on the board, including the Governor, two Deputy Governors and six other members
  2. Executive Directors – this is the administrative arm of the BoJ, in charge of assisting the Governor and Deputies, and ensuring the Bank’s business runs smoothly. This is comprised of six people, as well as the Management Committee and Compliance Committee
  3. Head Office – there are 15 departments that make up the Bank’s Head Office, including the Internal Auditors’ Office, Monetary Affairs Department, Financial System and Bank Examination Department and Financial Markets Department

The Bank of Japan also has 32 branches and 14 local offices throughout the country, as well as seven offices abroad.

What is the BoJ’s Monetary Policy Meeting (MPM)?

The Bank of Japan’s Monetary Policy Meeting (MPM) is the Policy Board’s committee that sets interest rates and other monetary policies for Japan. The aim is to collectively decide on policies that will achieve economic stability across Japan and contribute to the BoJ’s inflation targets by influencing consumer spending.

MPMs are held eight times a year and last for two days. The Board will consider in-depth economic analysis and financial conditions when making their decisions. These decisions are released immediately to uphold the BoJ’s policy of complete transparency. The Governor of the BoJ will also hold a press conference to explain any changes and monetary policy decisions.

What is the latest BoJ rate decision?

The latest Bank of Japan decision was on March 18 2021. In the meeting notes, the Bank stated it will continue with monetary easing in a ‘sustainable manner’.1 It would do so by taking three actions:

  • Cutting short and long-term interest rates. The central bank kept overnight interest rates on hold at -0.1%
  • Ensuring the range of 10-year Japanese government bond yields is understood to be between plus and minus 0.25%
  • Purchasing exchange-traded funds and Japanese REITs as necessary. The BoJ will continue to buy equities up to a maximum of ¥12 trillion ($110 billion) a year

When is the next BoJ Monetary Policy Meeting (MPM)?

The next Bank of Japan is interest rate announcement will be on April 26-27, 2021. The Outlook report will be released immediately afterwards, usually via a press conference that is held anytime between 2:45am and 5am on the day of the release.

The full text will be available at 2pm the next business day. Usually, the summary of opinions and MPM minutes are released at 8:50 on their scheduled release days.

Bank of Japan monetary policy meeting (MPM) calendar 2021

What is the Bank of Japan interest rate?

The Bank of Japan’s interest rate – just like any central bank – is the mechanism by which it manipulates inflation by imposing borrowing and lending rates for currencies.

The BoJ is known for its negative interest rates, meaning that banks have to pay to borrow money from the central bank. This policy first came into place in January 2016 and has been held into 2021.

What is the Bank of Japan overnight call rate?

The Bank of Japan overnight call rate refers to interest rates for uncollateralised transactions made in the call market. This is the interest rate which banks lend or borrow funds to each other in the overnight market. It’s also known as the Mutan rate, which is specific to transactions for Japanese Yen markets.

How do BoJ announcements impact financial markets?

As BoJ interest rate decisions will impact consumer spending and commercial borrowing rates, they can have a direct impact on bonds, shares, currencies and other securities. The market movement created from these meetings can therefore create significant opportunities for speculative traders.

When the outcome of the meeting is aimed at lowering spending and reducing inflation, this will cause the value of stocks, bonds, indices and other securities to fall, but can increase the value of the Yen.

Conversely, policy aimed to increase inflation and spending – such as quantitative easing – will cause the Yen to devalue and other asset classes to rise.

Most traders will monitor Yen forex pairs such as USD/JPY, EUR/JPY and GBP/JPY, the Nikkei 225 stock index, as well as large Japanese companies such as Toyota, SoftBank, Sony and Mitsubishi.

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Bank of Japan quantitative easing history

BoJ is known for pursuing decades of somewhat unconventional monetary policy. For a 15-year period, it has consistently sold the Yen to keep the currency’s value low and make exports competitive globally. This is known as quantitive easing, and it gives commercial banks excess liquidity to promote lending. It does this by buying government bonds and recapitalising businesses through private asset purchases.

The aggressive fiscal policy stance really kicked in during the 1990s, when nine stimulus packaged totalled 140.7 trillion yen.

By 1997, the BoJ had decided to help out the financial services industry by buying trillions of yen in commercial paper – this was the first recorded ‘quantitive easing’. Between 2001 and 2004, banks received nearly 35.5 trillion yen in liquidity. Despite the interventions, most of Japan’s growth has been temporary and the economy has remained stagnant over the long term.

As the Japanese economy shrank during the global recession, BoJ launched new quantitative easing policies in 2013, and again in 2014.

In the MPM held in September 2016, the BoJ introduced a new policy framework of ‘Quantitative and Qualitative Monetary Easing (QQE), alongside negative interest rates.

Who is the Bank of Japan Governor?

The Governor of the Bank of Japan is Haruhiko Kuroda, who was previously the President of the Asian Development Bank. Kuroda was first nominated in 2013, and again in 2018 – each term is five years long.
DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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