The paper 'Industry and Business' is a great example of a Business Case Study. The Bank of Japan plays a major role in the regulation of the economy in Japan. The bank has been involved in fighting deflation in the Japanese market (Williams, 2009). The capital policy imposed by the Bank of Japan gives the impression that its financial strength might highly be affected if any change occurs in the macroeconomic environment. The Financial Services Agency is the organization charged with the responsibility of regulating banks in Japan. It also regulates insurance, securities, and other financial services organizations. The Central Bank of Japan is known as the Bank of Japan (BOJ) and plays a role in maintaining an organized financial system.
The BOJ is mandated by the Banking Act Article 44 to assess financial organizations by issuing on-site examinations about some policies such as emergency loans where the collateral is never required. Most of the securities operating in Japan and affiliates of overseas investment banks have a current account with the BOJ. For instance in 1965, the BOJ advanced a loan to a large securities company and repeat it in 1997. The Ministry of Finance was in charge of bank regulation until 1998 the FSA took over.
When there was a financial crisis in 1998, the Credit Bank of Japan which is currently known as Shinsei Bank and the Aozora Bank which was initially known as Nippon Credit Bank was placed under special management (Roger, 2009). By that these two banks were considered to be too big to fail to meet operation standards and even placing then under special management was a risky exercise.
After the restructuring of the Banking Act to include Deposit Insurance law, the FSA took over the regulatory power in 2000 and left the MOF to be dealing with issues to do with financial stability. Japanese experienced a financial crisis in the late 1990s and early 2000 and FSA was instrumental in overcoming the crisis. Most of the Japanese financial assets are deposited in foreign countries with the United States taking an eighth while France and Germany take a third of the deposits. These depository institutions form the flow of funds to Japan’ s economy.
It is a reduction in the depository finance that had contributed to the financial crisis in Japan. There was also a deflation in the 1990s and 2000 that caused the value of the real estate to fall drastically. The BOJ strived to keep interest rates at a considerable level where its policy in interest rates went as low as 0.5 percent in 1995 and by 1999 had reached zero. It started going up and by 2008 it was still recorded at 0.5 Percent (Williams, 2009).
FSA moved in fast to attend to the smaller financial institutions in Japan to avoid a global financial panic. Appropriate measures pertaining to policy regulation had to be applied including the introduction of the ‘ Prompt Corrective Action. Some financial assistance was forwarded to financial institutions by the Deposit Insurance Corporation of Japan (DICJ). The grant was around 18.7 trillion yen. In planning for the resolution policies to deal with the financial crisis, Japan gained a lot of experience from the United States as it applied the system used in the United States of requesting taxpayers to pump in funds into the economy to enhance the stability of the financial system.
The taxpayers paid more than 10 trillion yen through the deposit insurance system. The Japanese authorities also injected more than 12 trillion yen into the economy through bank deposits and the provision of subordinate loans.
Griffins, M. (2010). Banking Policy in Japan. London: Oxford.
Murray, A. (2008). The Banking Policy in Canada. Vancouver: Routledge.
Roger, M. (2009). How to deal with financial crisis. New York: Routledge.
Williams, G. (2009). Effective regulations of the banking sector: Case Study. New York: Time Books.