Japan

Abstract

Japan had a pretty sophisticated market economy during the Tokugawa shogunate. Osaka developed as the main commercial and financial center, Kyoto was the industrial center because of its technological advancements, and Edo, which is present-day Tokyo was the political and commercial center where the Shōgun and the families of the feudal lords resided. The Japanese economy and its political system saw many changes during the Meiji Restoration, including the establishment of a precursor to modern commercial banks called kawase-gaisha. Japan then debated about the pros and cons of establishing a network of American-style national banks versus establishing a European-style central bank, with the supporters of the former emerging victorious. Like the national banks in the United States, the Japanese national banks could also issue currency. The precursors to the central bank were the clearinghouses that were established in Osaka in 1879 and in Tokyo in 1880 due to the ever-increasing amount of transactions that involved multiple banks. The Bank of Japan was established as the central bank of the country in 1882; the national banks were stripped of their authority to issue bank notes, and that right was vested solely in the central bank. The Bank of Japan Act has been amended several times; the most important of these was the establishment of the Policy Board as the top decision-making body of the bank in June 1949. The act was almost completely revised in June 1997 with the twin goals of “independence” and “transparency” in mind. Article 1 of the Bank of Japan Act states the purpose of the central bank as issuing bank notes and carrying out currency and monetary control. Additionally, the central bank is also tasked with ensuring smooth settlement of funds among banks and other financial institutions, hence contributing to the stability of the financial system. Article 3 codifies the autonomy of the bank.