The Summary of the Report

Concerning the Revision

of the Bank of Japan Law

(Provisional Translation)

* The Bank of Japan Law, established during wartime, shall be comprehensively revised.

→ Japan will establish a central bank system fit to be the nucleus of the financial system

in the 21st century.

* The Bank of Japan's independence, and the transparency of its policy making process,

shall be secured.

← Realizing the Central Bank Study Group's proposal of "Open Independence"

for the Bank.

1. Basic Idea

(1) The purpose and philosophy shall be revised.
1) Issuance of bank notes and formulation and implementation of monetary policy
→ The Bank shall contribute to the development of a sound national economy through the maintenance of price stability.
2) The Bank shall contribute to the maintenance of an orderly credit system by securing smooth funds settlements for financial institutions.
(2) The independence and transparency of the Bank's monetary policy shall be secured.
(3) Relationship to the Government:
The Bank of Japan shall maintain close communication with the government to ensure there is sufficient mutual understanding to secure consistency between the government's economic policy and its monetary policy.
(4) The Public Nature of the Bank of Japan:
The Bank of Japan shall properly and effectively conduct its operations in light of the public nature of its activities and assets.
In implementing this law, the Bank's independent efforts in carrying out its operations shall receive sufficient consideration.

2. Securing the Bank of Japan's independence and the transparency of its policy making process

(1) Strengthening the Policy Board
1) The Policy Board shall be the highest policy making body:
Elimination of the Directors' Meeting → The Bank will have only one policy making board.
2) Reform of the structure of the Policy Board

Persons of superior experience and knowledge Executive Body Government
At present4 appointees (financial, industrial, and agricultural expertise)

the Governor
Appointees (one from the MOF and another from EPA)
Proposal6 Board members (of learning and experience) the Governor

2 Vice Governors

may attend

where necessary

(2) Framework for the coordination of monetary policy between the Government and the Bank

1) The person(s) from the Government may attend Policy Board meetings where necessary. (attendance is only to those Policy Board meetings discussing monetary policy issues. They have no voting rights.) (Government participants shall be the Minister of Finance or his designee in the Ministry of Finance, or the Director of the Economic Planning Agency or his designee in the Economic Planning Agency):

* [Positions of the Government representatives shall be abolished.]

2) The person(s) from the Government may submit proposals regarding monetary policy for deliberation, and make a motion to postpone Policy Board decisions until the following meeting.

(The Policy Board shall decide whether to adopt or reject such a motion.):

* [The Finance Minister's broad authority to issue directions to the Bank will be abolished.]

3) The transparency of the Bank's monetary policy making process shall be ensured:

Minutes and records of the Policy Board meetings will be publicly disclosed.

3. Review of the status of the Bank's officers and staff

(1) Executive Directors' status

1) Positions of officers shall be secured.

→ Causes for their dismissal will be limited. (The Officers will not be dismissed for having different opinions from that of the Government.)

2) Governor and the Vice Governors will be appointed with the consent of both Houses.

3) Authority of Auditors will be strengthened: At least one Auditor shall be appointed from the outside.

(2) Principles on officers and staff shall be established.

1) The duty to protect confidential information shall be prescribed.

2) The standard of remuneration:

The Bank of Japan shall determine the standard of remuneration, and report it to the Minister of Finance and the public.

3) Rules applicable to officers and staff:

The Bank of Japan shall establish rules for its officers and staff, covering such matters as limiting employment with private sector companies after retirement. The Bank shall report these rules to the Minister of Finance and public.

4. Correction of misconduct, and public control of the operating budget

(1) Correction of misconduct

1) The broad authority of the Minister of Finance to issue directions to the Bank of Japan and appoint its Comptroller will be abolished.

2) The scope of its investigation shall be limited to a minimum:

It will be limited to requiring correction of violation of law and the Bank's Articles of Association.

3) On-site investigations will be abolished, and Auditors will be utilized in investigating misconduct.

(2) Public control of the operating budget

The requirement for the Finance Minister's permission shall be maintained subject to safe guarding clauses to ensure formulation and implementation of monetary policy is not influenced:

Items requiring the Minister's permission shall be clearly stated.

(Those items are limited to personnel, communication, and general business expenses, in order to ensure monetary policy is not influenced.)

When the Minister of Finance does not grant such permission, he shall provide a notice of rejection, and its grounds, to the public. Upon receipt of the notice of rejection, the Bank may publicly disclose its opinion.

5. Clarifying the Bank of Japan's Business Operations

(1) The business operations for maintenance of confidence in the financial system shall be clearly stated.

1) The Bank of Japan may make advances for a limited duration, in its own judgment.

2) The Bank of Japan may, upon the request of the Minister of Finance, take special measures.

* In the case of national emergency:

The Bank is expected to respond to the Government's request. The duty of the Bank during national emergencies will be discussed in the context of the Government's risk management system.

(2) The nature of the Bank's international finance business operations will be clarified.

(3) The Bank's on-site examination of financial institutions will be stipulated as based on contracts. The characteristics of the contracts shall be reviewed.

6. Review of the system for issuing bank notes

Provisions limiting the maximum amount of bank notes issued and the requirement for a reserve of bank notes will be eliminated.

7. Reports to the Diet

The Bank of Japan shall enhance its reporting to the Diet, by such means as establishing relevant procedures to submit a report on its operations every six months.

8. Miscellaneous

(1) Amendment to the Law Concerning Reserve Deposit Requirement System:

The authority of the Minister of Finance to fix, change or abolish reserve rates shall be eliminated.

(2) Effective Date

This law shall be effective on April 1, 1998.

[Council Information]