"Monetary Policy and Macroeconomy in Japan: A Historical Perspective"(in Japanese)

In this paper, we examine the decision-making process of the monetary policy in postwar Japan, focusing on the discount rate policy. Since late 1950's, BOJ has generally given priority to WPI as a criterion to judge the timing of the discount rate change. In 1950's, when prosperity overheated, WPI rose sharply, before current balance of payments turned into deficit. Then BOJ judged that the discount rate should be raised, while current balance was still in surplus. Only in early and middle 1960's, when was general balance of payments turned into deficit under stable WPI, BOJ took the general balance deficit as the criterion. In late 1960's, when large and continuous balance of payments surplus emerged, BOJ came to judge the timing of the discount rate change according to WPI again. The serious inflation in early 1970's was partly because of this policy stance of BOJ. It continued loose monetary policy, on the ground that WPI was stable, although money supply had increased substantially. Reflecting on this experience, BOJ came to make much of money supply in the middle of 1970's. However, even in 1979, it was after WPI began to rise rapidly when BOJ judged that the discount rate should be raised. In the latter half of 1980's, BOJ watched excessive money supply and rise of asset prices as early as 1986. However, it did not make up its mind to raise the discount rate until WPI started to rise in 1989, when the serious asset price inflation had already took place. Actually, discount rate policy was determined not only by BOJ's judgement but also by the policy of the government. In this sense, BOJ has not been independent of the government. In general, when the government was carrying out expanding policy, the time lag between BOJ's judgement and the raise of the discount rate was long, and vice versa. In early 1970's and late 1980's, the expanding policy stance of the government made the raise the discount rate still later, which caused rapid inflation and asset price inflation.