The Asian Wall Street Journal, Monday, 11 November 1996


Liberating the BoJ

For the better part of the past 125 years, much of Japan's internal debate has revolved around how the nation can attain its rightful place alongside other powers. In the last few years, echoes of that dialogue have been heard in the opposition's promise to turn Japan into a "normal country".And as Japan prepares to enter the 21st century, no question needs to be considered in this context more seriously than the present issue over which institution should be in charge of the growth of that key commodity: money.

Right now, the conduct of monetary policy is shared uneasily by central bankers, Finance Ministry bureaucrats and politicians. But if the Bank of Japan is ever to mount the same stage with the U.S. Federal Reserve and Germany's Bundesbank it must first gain a larger measure of independence.


Right now, the MoF has powers over the BoJ that its counterparts in Washington or Bonn could only dream about. For one, the ministry can fire the BoJ's governor any time it pleases. It also has one of its officials sit in at bank policy meetings where interest rate decisions are reached, and takes turns with the BoJ in appointing the bank ' governors for their five-year mandates. In the past, when the head of the central bank has not done as told right away, the politicians have not hesitated to call for his dismissal.

MoF officials protest that they don't exercise these powers. A senior MoF official compared the relationship between the two institutions to that of a married couple. "The husband is the MoF and the wife is the BoJ," he told us. "Japanese women go abroad and say their husbands are tyrants. But I can't spend a penny without my wife's permission."

But this metaphor could also be an argument for BoJ reform. Nearby Jardine Fleming Securities chief economist in Japan, Richard Werner, raises some troubling questions about just which entity caused Japan's long, crippling recession, and whether it was kept going by turf fighting. If Mr Werner is right, the marriage has gone sour, and all of Japan is being forced to suffer through the spats.