The management of Japan's monetary
policy is entrusted to the nation's central bank, the Bank of
Japan (BOJ)(*1), established in 1882. The functions and operations
of the BOJ are governed by the Bank of Japan Law(*2), revised
in 1997 to give it greater independence from the government.
Its supreme decision-making body is the nine-member Policy Board,
chaired by the governor of the BOJ. The main responsibilities
of the BOJ are to issue banknotes, administer currency and monetary
control, and ensure the smooth settlement of funds between banks
and other financial institutions, thereby helping maintain an
orderly
financial system.(*3)
In order to quell fears of a global recession following the
terrorist attack in the United States in September 2001, which
paralyzed international finance, the BOJ decided to further
ease monetary policy by cutting the official discount rate by
0.15 point to a historic low of 0.10%, and by increasing its
overall balance of commercial bank reserve deposits.
In March 2003, the Japanese government appointed Toshihiko Fukui
as the new BOJ governor. Fukui, a former deputy BOJ governor,
has so far maintained the central bank's policy to pump ample
liquidity into the money markets to fight deflation. In October
2003, BOJ policy board issued a report in which a majority of
board members foresee mild but continued price deflation in
fiscal 2004. The prediction indicated that there would be no
change in its policy until the central bank has confidence that
consumer prices are poised to turn up.
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