The Structure of Japan’s Financial Regulation and Supervision and the Role Played by the Bank of Japan (Published in Journal of Regulation & Risk: North Asia, Spring 2010, Vol.2, No.1. 87-97.)

Abstract

In this short note, I will explain the structure of Japan's financial regulation and supervision and discuss by way of examples the structure's weaknesses and strengths. In doing so, I pay particular attention to the role played by the Bank of Japan (BOJ). The paper focuses mostly on the period since the late 1980s when Japan saw the formation of land and stock price bubbles, their burst and serious negative effects on the financial system and the economy. I argue that, despite a streamlined structure of financial regulation, monetary authorities' response was not quite optimal and discuss possible reasons for the sub-optimal behaviors. I also point out that there are significant synergies between monetary policy and prudence policy at central banks, but that such synergies are not fully exploited.