The Independence of the Bank of Japan in the Light of Statutory Rules and Central Bank Independence Indices

This chapter undertakes to assess of the independence of the Bank of Japan (BoJ) in the light of statutory rules and central bank independence indices. It starts off by tracing the historical development of the BoJ which, from its establishment in 1882, was firmly put under government control. During World War II the so-called old Bank of Japan Act of 1942 even strengthened government authority, and despite some efforts to de-centralise the monetary policy process after the war, the BoJ remained subordinate to the Ministry of Finance (MoF) until 1997. At that time, in the wake of the “Big Bang” reforms for financial liberalisation, the Bank of Japan Act was fundamentally revised, and the MoF lost much of its wide-ranging authority over the Bank. Against this backdrop, in a second step this chapter examines the de iure independence of the BoJ with a view to the various dimensions of central bank independence—namely, institutional, personal, functional, and financial independence. In a third step quantitative approaches to measure the independence of the BoJ from a comparative perspective through central bank independence indices are assessed. Whilst methodological issues are identified with various of these indices, their results are roughly in line with the findings of the legal analysis that the 1997 reform has substantially strengthened the independence of the BoJ. On the other hand, as evidenced by recent developments under the second Abe government, weaknesses with regard to the personal independence of the BoJ and factors pertaining to Japan’s political economy seem to continue to render the Bank prone to political interference.