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2015 | OriginalPaper | Chapter

Central Bank Independence in Times of High Fiscal Risk: The Case of Japan

Author : Franz Waldenberger

Published in: Central Banking and Financial Stability in East Asia

Publisher: Springer International Publishing

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Abstract

The Bank of Japan Act of 1997/1998 grants the Bank of Japan (BoJ) operational independence regarding the conduct of monetary policy. This independence is legally constrained and has also been questioned politically by the Abe administration’s recent usurpation of monetary policy as part of its overall economic policy. The deflationary environment characteristic of the Japanese economy over the last 20 years has, to date, avoided fiscal and monetary policy goals coming into conflict. The real test for central bank independence in Japan will come once deflation has been overcome and the harmonious relation between price stability and fiscal, as well as financial system, stability comes to an end. Price stability may still be maintained as long as fiscal consolidation is synchronised with the reduction in the non-public sector’s saving-investment balance.

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previous chapter The Legal Framework for the European System of Central Banks

next chapter The Legality of Outright Monetary Transactions of the European System of Central Banks

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The monetary base represents the money aggregate most closely controlled by a central bank. It is defined as the currency in circulation plus the amount of reserves that commercial banks deposit at the central bank.

The FILP represented a specific Japanese public investment scheme financed by postal savings and life insurance as well as public pension funds. For details, see Cargill and Yoshino (2003).

Deposits with the Fiscal Loan Fund were reduced by 210 trillion yen between end of March 2001 and end of September 2007. Over the same period investments in JGBs and FILP bonds increased by 120 trillion yen, total assets decreased by 90 trillion yen and the overall exposure to government debt declined from 88 to 85 % (Bank of Japan, Flow of Funds Statistics).

Basically, the banks selling JGBs to the BoJ immediately deposit the central bank money from the transaction with the BoJ.

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Title: Central Bank Independence in Times of High Fiscal Risk: The Case of Japan
Author: Franz Waldenberger
Publisher: Springer International Publishing
Book: Central Banking and Financial Stability in East Asia
Print ISBN: 978-3-319-17379-5

Electronic ISBN: 978-3-319-17380-1

Copyright Year: 2015
DOI: https://doi.org/10.1007/978-3-319-17380-1_5