On Japans Monetary policy for Yen/Dollar ratio
Source: Japan central bank
6/24/20241 min read
The Bank of Japan (BOJ) is the central bank responsible for implementing monetary policy to maintain price stability, which is fundamental for the nation's economic activity. By influencing interest rates through money market operations, the BOJ aims to control currency and monetary conditions. The Policy Board, during Monetary Policy Meetings (MPMs), determines the monetary policy stance and guidelines for money market operations. These guidelines dictate the amount of daily market operations and the types of instruments used to provide or absorb funds.
Price stability is crucial as it underpins the economic decisions of individuals and firms regarding consumption and investment. Fluctuating prices can disrupt these decisions, leading to inefficient resource allocation and distorted income distribution. To combat this, the BOJ set a "price stability target" of 2% year-on-year change in the consumer price index (CPI) in January 2013, committing to achieving this target as soon as possible.
MPMs are held eight times a year over two days, during which the Policy Board, consisting of the Governor, two Deputy Governors, and six other members, discusses and votes on monetary policy. The BOJ conducts thorough research and analysis on economic and financial conditions to inform its policy decisions. Its operations include funds-supplying operations, where it extends loans to financial institutions, and funds-absorbing operations, such as selling bills.
The BOJ operates independently from the government, ensuring its policies are neutral and free from inflationary pressures. However, it maintains close contact with the government to ensure policy harmony. Transparency and accountability are emphasized, with the BOJ releasing its decisions and the rationale behind them immediately after MPMs. Regular press conferences, semiannual reports to the Diet, and appearances before legislative committees further clarify the BOJ's monetary policy decisions and their impact on the economy.
