1998 Reports

Japan's new central banking law: A critical view

Mikitani, Ryoichi; Kuwayama, Patricia H.

Japan's new central banking law, enacted in June 1997 with effect from April 1, 1998, takes several steps in the direction of assuring greater transparency, independence, and accountability for the Bank of Japan's conduct of monetary policy. But with respect to the other functions of a central bank, it does no such thing. Instead, the approach has been to leave these traditional banking functions which are at least important as monetary policy narrowly defined - as much as practicable under the control of the government's finance ministry. Most disappointing has been the opaque and haphazard process by which the new law was drafted and passed. This reflects badly on the maturity of Japan's democratic institutions, and represents a discouraging start to the government's "Big Bang" program of financial reform. However, the law does not, in itself, preclude the emergence of an independent and successful central bank: That outcome will depend much more on actions taken by BoJ officials over the next few years.