The Bank of Japan has much attention for its Monetary Policy decision and interest rate decision. The announcements have major impact on Forex, Japanese Stocks, Yen and Nikkei 225. It has always received a lot of attention for its unusual monetary policies. Discover everything you need to know here.
What is BOJ?
The Bank of Japan, or BOJ, is Japan’s central bank; it has been operational since 1885—when it first issued currency and it was reorganized in 1942. It is headquartered in the Nihonbashi business district in Tokyo. It is also known as Nichigin. The Bank has 32 branches and 14 local offices in Japan, and seven international offices – including London, Frankfurt, Paris, Hong Kong and New York. The BOJ is responsible for determining monetary policy, setting interest rates, issuing and monitoring currency and treasury securities.
History
The Bank of Japan was established under the Bank of Japan Act (promulgated in June 1882) and began operating on October 10, 1882, as the nation’s central bank. The Bank was reorganized on May 1, 1942 in conformity with the Bank of Japan Act (hereafter the Act of 1942), promulgated in February 1942. The Act of 1942 strongly reflected the wartime situation: It is the sole bank that issues the yen. The objectives of the Bank are the regulation of the currency, control and facilitation of credit and finance, and the maintenance and fostering of the credit system, pursuant to national policy, in order that the general economic activities of the nation might adequately be enhanced. The Act of 1942 was amended several times after World War II. Such amendments included the establishment of the Policy Board as the Bank’s highest decision-making body in June 1949.
The Act of 1942 was revised completely in June 1997 under the two principles of “independence” and “transparency.” The revised act (the Act) came into effect on April 1, 1998.
Structure
The Policy Board is established as the Bank’s highest decision-making body and is made up of nine members: the Governor, two Deputy Governors, and six Members of the Policy Board. Japan monetary policy decisions are made by a majority vote of the nine members of the Policy Board, which determines the guideline for currency and monetary control, sets the basic principles for carrying out the bank’s operations and oversees the fulfilment of the duties of the bank’s officers, excluding Auditors and Counsellors. The role of the Governor is to represent the bank and to exercise general control over the bank’s business operations in accordance with decisions made by the Policy Board. Hence, the Governor of the Bank of Japan has considerable influence on the economic policy of the Japanese government.
Japan Monetary Policy meetings
The main goal of the Bank of Japan monetary policy is to ensure price stability. The Bank of Japan manipulates the money supply in the economy and also influences the interest rates, to achieve price stability. The bank changes the money volume in the Japanese economy by performing money market operations. MPMs are held eight times a year, each for two days. In MPMs, policy board members discuss and decide on guidelines for monetary market operations. Monetary policy decisions are made by a majority vote of nine members of the Policy Board, consisting of the Governor, two Deputy Governors and six other members.
In addition to in-depth research and analysis on economic and financial conditions, the Bank studies and explores various aspects of monetary policy, namely monetary policy strategies and tools as well as the financial system. The bank uses its research findings as the basis for determining monetary policy.
BOJ interest Rate Decision
The Bank of Japan’s interest rate – just like any central bank – is the mechanism by which it manipulates inflation by imposing borrowing and lending rates for currencies.
The BoJ is known for its negative interest rates, meaning that banks have to pay to borrow money from the central bank. This policy first came into place in January 2016 and has been held into 2021.
BOJ Mission
- Issuance and management of banknotes
- Implementation of monetary policy
- Providing settlement services and ensuring the stability of the financial system
- Treasury and government securities-related operations
- Compilation of data
- International activities
- Economic analysis and research activities
Conclusion
Trading the news and events surrounding the BoJ meeting is always exciting and can be potentially beneficial for traders. Following the content of the MPM’s decisions on monetary policy, such as the guideline for money market operations, in addition to its views on economic and financial developments can project an economic outlook and offers clues whether the BoJ will cut interest rates, increase interest rates or maintain them. For example, positive economic news can indicate an upcoming increase in interest rates, resulting in a strengthening JPY. If the news is negative, the opposite may happen, meaning we may expect a decrease in interest rates, leading to a weakening JPY. Consequently, a higher than expected rate is considered positive/bullish for the JPY, while a lower than expected rate is considered negative/bearish for the JPY.
Many traders base their positions on the MPM announcements. Moreover, knowing when the upcoming BoJ meeting is scheduled to occur allows to plan A and prepare in advance for the volatility that will almost certainly surround the event. Therefore, as traders, it is important to realize that the Japan monetary policy carried out by the BoJ is one of the most important factors affecting various types of assets on a fundamental level, hence creating potentially superb trading opportunities. These include the yen and its paired global currencies, government bonds, local equities and indices and other securities.
