Abstract
The main objective of this section is to explain several aspects of the monetary policies followed by the Bank of Japan (BOJ) in the process of Japan’s postwar economic growth. A focal point of our investigation is the monetary controls maintained by the BOJ in the 1970s. While the BOJ clearly failed to achieve the purpose of such controls in the early 1970s, it succeeded in stabilizing the growth rate of the nation’s monetary supply after the mid-1970s. Why did its policy instruments fail in one period and succeed in another? We shall probe this central question by asking the following two subsidiary questions: (1) How was it possible for the BOJ to control the money supply with precision? and (2) Was the ‘monetarism’ emphasized by the BOJ after the mid-1970s directly related to its success in this period?
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Notes
See, for example, Lawrence B. Krause and Sueo Sekiguchi, ‘Japan and the World Economy’, in Hugh Patrick and Henry Rosovsky (eds), Asia’s New Giant: How the Japanese Economy Works (Washington, DC: The Brookings Institution, 1976) pp. 440–44.
See Akiyoshi Horiuchi, ‘Madoguchi-Shidō no Hitsuyōsei’ (The need for window guidance), in Keimei Kaizuka and Hideo Kanemitsu (eds), Gendai-Nihon no Keizai Seisaku (Economic policies in contemporary Japan) (Tokyo: Nihon Keizai Shimbunsha, 1981) pp. 70–94.
Yōichi Shinkai, ‘Is Stabilization Policy Possible in Japan?’, Japan Economic Studies, Vol. 5, No. 4 (Summer 1977) pp. 71–86.
Some economists believed the fixed exchange rate of $1.0 = 360 yen to be an important policy instrument for promoting industrialization in postwar Japan. A direct corollary to this view was the belief that yen revaluation would cause serious problems in the domestic economy. See Miyohei Shinohara, Nihon-Keizai no Seichō to Junkan (Economic growth and business cycles in the Japanese economy) (Tokyo: Sōbunsha, 1961) Ch. 14.
Cases of official intervention in Japan are examined in detail in Ryūtarō Komiya and Miyako Suda, ‘Sekiyu-Kiki to Kawase Seisaku’ (The oil crisis and foreign exchange policy), Keizaigaku Ron Shū, Vol. 46, No. 4 (January 1981) pp. 2–27.
M. D. K. W. Foot, ‘Monetary Targets: Their Nature and Record in the Major Economies’, in Brian Griffiths and Geoffry E. Wood (eds), Monetary Targets (London: Macmillan Press, 1981), pp. 13–40;
and Organization for Economic Cooperation and Development, Monetary Targets and Inflation Control (Monetary Studies Series) (Paris: Organization for Economic Cooperation and Development, 1979) pp. 29–61.
Window guidance was introduced in the first half of the 1950s. The specific procedures of guidance were modified in the early 1960s. For detail, see Hugh Patrick, Monetary Policy and Central Banking in Contemporary Japan (Bombay: University of Bombay, 1962) Ch. 8. It was, however, not until the mid-1960s that the procedures were fully systematized.
As I have argued elsewhere, window guidance has been neither necessary nor sufficient for purposes of effective monetary control in Japan. See Akiyoshi Horiuchi, ‘Effectiveness of “Lending Window Guidance” as a Restrictive Monetary Policy Measure’, Japan Economic Studies, Vol. 6, No. 2 (Winter 1977–8) pp. 71–92. Window guidance, however, has been effective in controlling random fluctuations in the money supply.
See, for example, Yoshio Suzuki, Money and Banking in Contemporary Japan (New Haven: Yale University Press, 1980) pp. 59–61.
Ryūtarō Komiya and Miyako Suda, ‘Kanri Furōto ka no Tanshi Idō’ (Shortterm capital movements under the managed float), Keizaigaku Ron Shū, Vol. 46, No. 1 (April 1980), pp. 11–57.
Needless to say, political risk is a very important consideration in international investments. As one author has put it, ‘political risk will not only reflect the existing structure of controls but also the markets’ perception of future government actions based on past and current information’. See Ichiro Otani and Siddharth Tiwari, ‘Capital Controls and Interest Rate Parity: The Japanese Experience, 1978–81’, IMF Staff Papers, Vol. 28, No. 4 (December 1981) pp. 793–815.
See, for example, Ralph C. Bryant, Money and Monetary Policy in Interdependent Nations (Washington, DC: The Brookings Institution, 1980), Ch. 23.
Peter J. Quirk, ‘Exchange Rate Policy in Japan: Leaning Against the Wind’, IMF Staff Papers, Vol. 24, No. 3 (November 1977), pp. 642–64,
and Akihiro Amano, ‘Kanri Furōto-Sei ka no Kawase-Reito to Shihon Idō’ (Exchange rates and capital flow under the managed float), Kokumin Keizai Zasshi, Vol. 141, No. 6 (June 1980) pp. 20–38.
Takafusa Nakamura, The Postwar Japanese Economy: Its Development and Structure (Tokyo: University of Tokyo Press, 1981) Chs 6 and 7.
Karl-Heinrich Hansmeyer and Rolf Caeser, ‘Kriegswirtschaft und Inflation’, in Deutsche Bundesbank (ed.), Währung und Wirtschaft in Deutschland 1876–1975 (Frankfurt: Knapp, 1976) pp. 419ff.
See the following sources: Helmut Schlesinger, ‘Geldpolitik in der Phase des Wiederaufbaus’, in Deutsche Bundesbank, Währung und Wirtschaft, pp. 563ff, and Rudolph Stücken, Deutsche Geld- und Kreditpolitik 1914–1963 (Tübingen: Mohr, 1964) pp. 223ff.
Cf. Helmut Schlesinger and Horst Bockelmann, ‘Monetary Policy in the Federal Republic of Germany’, in Karel Holbik (ed.), Monetary Policy in Twelve Industrial Countries (Boston: Federal Reserve Bank of Boston, 1973) p. 186.
Cf. Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung (hereafter, SVR), Jahresgutachten 1964/65 (Stuttgart and Mainz: Kohlhammer, 1965) para. 236ff.
Cf. Ernst Dürr, ‘Gelungene Durchkreuzung der restriktiven Geldpolitik’, in Dieter Duwendag (ed.), Macht und Ohnmacht der Bundesbank (Frankfurt: Athenüum, 1973) p. 88.
Hans E. Büschgen, ‘Zeitgeschichtliche Problemfelder des Bankwesens der Bundesrepublik Deutschland’, in Institut für bankhistorische Forschung (ed.), Deutsche Bankengeschichte, Vol. 3 (Frankfurt: Knapp, 1983), p. 398.
This paragraph draws heavily on Armin Gutowski, Hans-Hagen Hartel, and Hans-Eckart Scharrer, ‘From Shock Therapy to Gradualism — Anti-Inflationary Policy in Germany from 1973 to 1979’, in William Fellner et al., Shock Therapy or Gradualism? A Comparative Approach to Anti-Inflation Policies (New York: Group of Thirty, 1981) pp. 57ff.
See, for instance, Deutsche Bundesbank, Monatsbericht, December 1973, pp. 6ff.
Helmut Schlesinger, ‘Problems of Monetary Policy in Germany: Some Basic Issues’, in John E. Wadsworth and Francis Leonard de Juvigny (eds), New Approaches to Monetary Policy (Alphen aan de Rijn: Sijthoff and Noordhoff, 1979) p. 6.
Rüdiger Pohl, ‘Sollte das Zentralbankgeldziel abgeschafft werden?’ Wirtschaftsdienst, 1983, no. 6, p. 308.
These figures are based on quarterly data for the periods 1962 Q 1 to 1972 Q 4, and 1973 Q 1 to 1983 Q 3, respectively. See Manfred Willms, ‘Zehn Jahre Geldmengensteuerung’, Wirtschaftsdienst, 1983, no. 12, pp. 598ff.
At the end of 1977, 9.1 per cent of the total identified official holdings of foreign exchange were D-Mark, the balance being US dollar (78 per cent) and Japanese yen (2.4 per cent). Of the total external assets and liabilities of banks in industrial countries reporting to the Bank for International Settlements 10.4 per cent were denominated in D-Mark, as compared with 45.5 per cent in dollars and nil in yen. See International Monetary Fund, Annual Report 1985 (Washington, DC), p. 54; and Bank for International Settlements, International Banking Developments (Basle, April 1985) Table 3.
My own view was no exception to the prevailing critical mood. See, e.g., Hans-Eckart Scharrer, ‘Begrenzter Erfolg?’ Wirtschaftsdienst, 1978, no. 12, pp. 582ff, and ‘EWS — Gefährlicher Zeitzünder’, Wirtschaftsdienst, 1980, no. 1, pp. 8ff.
Heinrich Matthes, ‘Le Système de credit allemand durent les années soixantedix’, Eurépargne, 1980, no. 11, p. 8.
Interview Karl Otto Pöhe, Handelsblatt, 16 May 1984, reproduced in English in Bank for International Settlements, Press Review, 24 May 1984, p. 2.
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© 1993 Haruhiro Fukui and Peter H. Merkl
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Horiuchi, A., Scharrer, HE. (1993). Monetary Policies. In: Fukui, H., Merkl, P.H., Müller-Groeling, H., Watanabe, A. (eds) The Politics of Economic Change in Postwar Japan and West Germany. St Antony’s/Macmillan Series . Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-22614-6_4
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