Financial Policy and Central Banking in Japan

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MIT Press, Jan 3, 2001 - Business & Economics - 206 pages
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Japan's financial institutions and policy underwent remarkable change in the past decade. The country began the 1990s with a heavily regulated financial system managed by an unchallenged Ministry of Finance and ended the decade with a Big Bang financial market reform, a complete restructuring of its regulatory financial institutions, and an independent central bank. These reforms have taken place amid recession and rising unemployment, collapsing asset prices, a looming banking crisis, and the lowest interest rates in the industrial world.This book analyzes how the bank-dominated financial system--a key element of the oft-heralded "Japanese economic model"--broke down in the 1990s and spawned sweeping reforms. It documents the sources of the Japanese economic stagnation of the 1990s, the causes of the financial crisis, the slow and initially limited policy response to banking problems, and the reform program that followed. It also evaluates the new financial structure and reforms at the Bank of Japan in light of the challenges facing the Japanese economy. These challenges range from conducting monetary policy in a zero-interest rate environment characterized by a "liquidity trap" to managing consolidation in the Japanese banking sector against the backdrop of increasing international competition.
 

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Contents

Introduction
1
12 Economic and Financial Distress Signals a Turning Point in Japans Postwar Economy
3
13 Organization of the Book
5
The 1990s Unprecedented Economic and Financial Distress
9
22 The 1990s in Postwar Historical Perspective
11
23 The Real Economy and Macroeconomic Stabilization
16
November 1997
23
25 The Japan Premium Scandals and Government Response
26
45 The 1998 Bank of Japan Law
96
46 The New Bank of Japan Law and Measures of Central Bank Independence
106
47 Concluding Comments
111
Inflation Targeting Liquidity Traps and the New Bank of Japan
113
52 Liquidity Trap Credit Crunch and Banking Malaise
115
53 Inflation Targeting and Central Bank Reform
123
54 The New Bank of Japan and Institutional Features of Inflation Targeting
133
55 Inflation Targeting to Stop Deflation
135

26 Economic and Financial Distress Spreads
28
27 Is Japans Banking Crisis Special?
29
28 The Japanese Economy in Comparative Perspective
35
29 Concluding Comments
37
The New Financial Supervision and Regulatory Framework
39
32 The Old System of Financial Supervision and Regulation
41
33 Transition from the Old to the New Financial Supervisory and Regulatory Framework
47
34 The New Supervisory and Regulatory Framework
71
35 The Bank of Japan and the New Financial Supervisory and Regulatory Framework
75
36 Concluding Comments
81
The New Bank of Japan
83
42 The Old Bank of Japan
86
43 The Need for Central Bank Independence in Japan
89
44 The New Bank of Japan
91
56 Would Inflation Targeting Have Stopped Japans Deflation?
140
57 Concluding Comments
142
Challenges Facing Financial Policy and Central Banking in Japan
145
62 The New Financial Supervision and Regulation Framework
146
63 Scandal and Uncertainty at the Bank of Japan
154
64 Bank of Japan Morale Human Capital and Political Pressure
155
Recession and Deflation
159
Providing Liquidity at Zero Interest Rates
164
Should the Bank of Japan Adopt an Inflation Target?
173
68 Concluding Comments
181
References
183
Index
191
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