Annual Review 2018

• Contents
• Request for Comments
• Notice

August 31, 2018
Bank of Japan

Contents

The full text of the report is available in the PDF version. The HTML version does not include the sections marked with asterisks (*).

• Foreword by the Governor [PDF 83KB]
• About the Bank of Japan [PDF 937KB]
  • I. Core Purposes
  • II. Capital
  • III. The Bank's Officers
  • IV. Organization
• The Bank's Business Operations [PDF 253KB]
  • I. Monetary Policy
  • II. Financial System Policy
  • III. Enhancement of Payment and Settlement Systems and Market Infrastructure
  • IV. International Operations
  • V. Issuance, Circulation, and Maintenance of Banknotes
  • VI. Services Relating to the Government
  • VII. Communication with the Public
• The Bank's Review of Fiscal 2017 [PDF 281KB]
  • I. Introduction
  • II. Review of Economic and Financial Developments and Monetary Policy Meetings
  • III. Performance Reviews of Measures Taken under the Strategic Priorities
• The Bank's Organizational Management in Fiscal 2017 [PDF 274KB]
  • I. Statement of Accounts and Budget for Expenses
  • II. IT Investment
  • III. Human Resources
  • IV. Organizational Management Measures
  • V. Internal Audits
• The Bank's Accounts: Financial Statements and Other Documents for Fiscal 2017*[PDF 2,008KB]
  • I. Assets and Liabilities, Profits and Losses, and Capital Adequacy Ratio
  • II. Financial Statements
  • III. Schedule for the Financial Statements
  • IV. Expenses
• Appendixes [PDF 1,208KB]
  • Appendix 1: Overview of Audits of the Bank of Japan*
  • Appendix 2: The Bank of Japan's Strategic Priorities for Fiscal 2014-2018
    • Attachment 1 for Appendix 2: The Bank of Japan's Budget for Expenses for Fiscal 2018*
    • Attachment 2 for Appendix 2: The Ceiling on the Number of Full-Time Employees of the Bank of Japan for Fiscal 2018*
• Information [PDF 1,557KB]
  • I. Bank of Japan Website
  • II. Visiting the Bank of Japan
  • III. Publications and Reports

Foreword by the Governor

About the Bank of Japan

The Bank of Japan is the central bank of Japan. It is a juridical person established based on the Bank of Japan Act (hereafter the Act), and is not a government agency or a private corporation (Table 1).

I. Core Purposes

The Act determines the Bank's core purposes as follows:

Article 1

1. (1) The purpose of the Bank of Japan, or the central bank of Japan, is to issue banknotes and to carry out currency and monetary control.
2. (2) In addition to what is prescribed in the preceding paragraph, the Bank of Japan's purpose is to ensure smooth settlement of funds among banks and other financial institutions, thereby contributing to the maintenance of stability of the financial system.

The Act also stipulates the principle governing the Bank's currency and monetary control as follows:

Article 2

Currency and monetary control by the Bank of Japan shall be aimed at achieving price stability, thereby contributing to the sound development of the national economy.

II. Capital

The Bank is capitalized at 100 million yen in accordance with Article 8, paragraph 1 of the Act. As of the end of March 2018, 55,008,000 yen is subscribed by the government, and the rest by the private sector (Table 2).¹

The Act does not grant holders of subscription certificates the right to participate in the Bank's management, and, in the case of liquidation, only gives them the right to request distribution of residual assets up to the sum of the paid-up capital and, if any, the special reserve fund.² Dividend payments as a proportion of paid-up capital are limited to 5 percent or below in each fiscal year.³

Notes:

1. 1Article 8, paragraph 2 of the Act states as follows: "Of the amount of stated capital set forth in the preceding paragraph, the amount of contribution by the government shall be no less than fifty-five million yen."
2. 2Stipulated by Article 60, paragraph 2, and Supplementary Provisions Article 22, paragraph 2.
3. 3Stipulated by Article 53, paragraph 4.

Note:

1. 1Rounded down to the nearest 1,000 yen. As of the end of March 2018.

III. The Bank's Officers

The Bank's officers are the Governor, Deputy Governors, Members of the Policy Board, Auditors, Executive Directors, and Counsellors.⁴ Of the above, the Governor, Deputy Governors, and Members of the Policy Board make up the Policy Board.⁵

The Governor, Deputy Governors, and Members of the Policy Board are appointed by the Cabinet, subject to the consent of the House of Representatives and the House of Councillors. Auditors are appointed by the Cabinet. Executive Directors and Counsellors are appointed by the Minister of Finance based on the Policy Board's recommendation.⁶

The terms of office are five years for the Governor, Deputy Governors, and Members of the Policy Board; four years for Auditors and Executive Directors; and two years for Counsellors.⁷ The Bank's officers, excluding Executive Directors, are not dismissed against their will during their terms of office, except in the cases prescribed in the Act, such as the formal commencement of bankruptcy proceedings against them.⁸

For duties and powers of the Bank's officers, see Table 3.⁹

Notes:

1. 4Stipulated by Article 21. The officers of the Bank consist of a Governor, two Deputy Governors, six Members of the Policy Board, three or fewer Auditors, six or fewer Executive Directors, and a small number of Counsellors.
2. 5Stipulated by Article 16, paragraph 2.
3. 6Stipulated by Article 23.
4. 7Stipulated by Article 24.
5. 8Stipulated by Article 25.
6. 9Duties and powers are stipulated by Article 16, paragraph 2, and Article 22.

Policy Board Members^1,2

A group photo of the Bank's Policy Board members

Standing from left to right: Hitoshi Suzuki, Makoto Sakurai, Yutaka Harada, Yukitoshi Funo, Takako Masai, and Goushi Kataoka
Seated from left to right: Masayoshi Amamiya, Haruhiko Kuroda, and Masazumi Wakatabe

Notes:

1. 1Members are as of August 1, 2018.
2. 2The texts of speeches by Policy Board members are available on the "Speeches by speaker" page on the Bank's website.

Haruhiko Kuroda Profile

1967	Joined Japan's Ministry of Finance (MOF)
1987	Director, International Organizations Division, International Finance Bureau
1988	Secretary to the Minister of Finance
1989	Director, International Tax Affairs Division, Tax Bureau
1990	Director, Income Tax and Property Tax Policy Division, Tax Bureau
1991	Director, Co-ordination Division, Tax Bureau
1993	Regional Commissioner, Osaka Regional Taxation Bureau, National Tax Agency
1994	Deputy Director-General, International Finance Bureau, MOF
1996	President, Institute of Fiscal and Monetary Policy
1997	Director-General, International Finance Bureau
1998	Director-General, International Bureau
1999	Vice Minister of Finance for International Affairs
2003	Special Advisor to the Cabinet and Professor, Graduate School of Economics, Hitotsubashi University
2005	President, Asian Development Bank
2013	Present position3

Notes:

1. 3Reappointed in 2018.

Masayoshi Amamiya Profile

1979	Joined the Bank of Japan
1998	Director, Head of Planning Division II, Policy Planning Office Director, Head of Money and Capital Markets Division, Financial Markets Department
1999	Director, Head of Planning Division I, Policy Planning Office
2001	Associate Director-General, Policy Planning Office
2002	Associate Director-General, Bank Examination and Surveillance Department
2004	Deputy Director-General, Secretariat of the Policy Board
2006	Director-General, Monetary Affairs Department
2010	Executive Director
2012	Executive Director and General Manager, Osaka Branch
2013	Executive Director
2018	Present position

Masazumi Wakatabe Profile

1991	Research Associate, Waseda University
1998	Assistant Professor, Waseda University
2000	Associate Professor, Waseda University
2005	Professor, Waseda University
2017	Visiting Scholar, Center on Japanese Economy and Business, Columbia Business School
2018	Present position

Yutaka Harada Profile

1974	Joined the Economic Planning Agency
1995	Director, Social Research Division, Social Policy Bureau
1997	Director, Overseas Research Division, Research Bureau
1998	Director, Price Policy Division, Price Bureau
1999	Vice President, Institute of Fiscal and Monetary Policy, Ministry of Finance
2002	Executive Research Fellow, Economic and Social Research Institute, Cabinet Office
2004	Chief Economist, Daiwa Institute of Research, Ltd.
2012	Professor, Waseda University
2015	Present position

Yukitoshi Funo Profile

1970	Joined Toyota Motor Corporation (TMC)
2000	Director, TMC
2003	President, Toyota Motor Sales, U.S.A., Inc. (TMS)
2005	Chairman and Chief Executive Officer, TMS
2006	Chairman and Chief Executive Officer, Toyota Motor North America, Inc. (TMA)
2009	Executive Vice President and Member of the Board, TMC
2013	Senior Advisor to the Board, TMC Chief Executive Officer, Institute for International Economic Studies
2015	Present position

Makoto Sakurai Profile

1976	Joined the Export-Import Bank of Japan
1980	Visiting Fellow, Economic Growth Center, Yale University
1989	Senior Economist, Research Institute for International Investment and Development, Export-Import Bank of Japan Director General and Chief Economist, Taisho Marine Research Institute Co., Ltd.
1990	Also served as Senior Research Fellow, Institute of Fiscal and Monetary Policy, Ministry of Finance
1996	President, Research Center for International Finance, Mitsui Marine Research Institute Co., Ltd.
2007	President, Sakurai & Associates International Finance Research Center
2016	Present position

Takako Masai Profile

1988	Joined Scotiabank, Tokyo
1989	Joined The Toronto-Dominion Bank, Tokyo
1998	Joined Credit Agricole Indosuez, Tokyo
2004	Joined Calyon Corporate and Investment Bank,4 Tokyo
2007	General Manager, Capital Markets Division, Shinsei Bank, Ltd.
2011	General Manager, Markets Division, Shinsei Bank, Ltd. General Manager, Markets Sub-Group, Shinsei Bank, Ltd.
2013	Executive Officer, Head of Markets Research Department, Markets Sub-Group, Shinsei Bank, Ltd.
2015	Executive Officer, General Manager of Markets Research Division, Shinsei Bank, Ltd.
2016	Executive Officer, General Manager of Financial Research Division, Shinsei Bank, Ltd. Present position

Notes:

1. 4Established in 2004 through merger of Credit Agricole Indosuez and Credit Lyonnais.

Hitoshi Suzuki Profile

1977	Joined The Mitsubishi Bank, Ltd.
2005	Executive Officer and General Manager, Treasury Planning Office and Treasury IT Planning Office, The Bank of Tokyo-Mitsubishi, Ltd. (BTM)5
2006	Executive Officer and General Manager, Global Markets Planning Division, The Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU)6
2007	Executive Officer and General Manager, Strategic Credit Portfolio Management Division, BTMU
2011	Senior Managing Director, Chief Executive, Global Markets Unit, BTMU
2012	Deputy President, BTMU
2014	Corporate Auditor, BTMU
2016	Director, Audit and Supervisory Committee Member, BTMU
2017	Advisor, BTMU Present position

Notes:

1. 5Established in 1996 through merger of The Mitsubishi Bank, Ltd. and The Bank of Tokyo, Ltd.
2. 6Established in 2006 through merger of The Bank of Tokyo-Mitsubishi, Ltd. and UFJ Bank Ltd., and subsequently renamed MUFG Bank, Ltd. in April 2018.

Goushi Kataoka Profile

1996	Joined Sanwa Research Institute
2005	Senior Economist, Economic & Social Policy Department, UFJ Institute Ltd.7
2006	Senior Economist, Economic & Social Policy Department, Mitsubishi UFJ Research and Consulting Co., Ltd.8
2016	Senior Economist, Economic Policy Department, Mitsubishi UFJ Research and Consulting Co., Ltd.
2017	Present position

Notes:

1. 7Established in 2002 through merger of Sanwa Research Institute and Tokai Research & Consulting Inc.
2. 8Established in 2006 through merger of UFJ Institute Ltd., The Diamond Business Consulting Co., Ltd., and Tokyo Research International Co., Ltd.

IV. Organization

Organization Chart of the Bank¹

The 9 members of the Bank's Policy Board are: Governor Haruhiko Kuroda; the 2 Deputy Governors, Masayoshi Amamiya and Masazumi Wakatabe; and the 6 Members of the Policy Board, Yutaka Harada, Yukitoshi Funo, Makoto Sakurai, Takako Masai, Hitoshi Suzuki, and Goushi Kataoka. note2 The 6 Executive Directors are Shigehiro Kuwabara, Eiji Maeda, Kimihiro Etoh, Nobuyasu Yoshioka, Shinichi Uchida, Yasuhiro Yamada. The 3 Auditors are Ryuichi Shogan, Toshihiko Fujita, and Ryota Yanagihara. The 10 Counsellors are Tsutomu Okuda, Akio Mimura, Masahiro Kawai, Eizo Kobayashi, Hiroaki Nakanishi, Ado Yamamoto, Masayoshi Matsumoto, Shigeharu Suzuki, Koji Fujiwara, and Yoshimitsu Kobayashi. For their respective duties and powers, please refer to Table 3. The Bank has 2 committees, the Management Committee and Compliance Committee, 15 Head Office departments, 32 branches, 14 local offices, and 7 overseas representative offices. note3

Notes:

1. 1As of August 1, 2018.
2. 2As stipulated by Article 16, paragraph 2 of the Act, the Policy Board shall consist of the Governor, two Deputy Governors, and six Members of the Policy Board.
3. 3Local offices include the Computer Center represented by the Director-General of the Information System Services Department, and the Banknote Operations Center represented by the Director-General of the Currency Issue Department.

Functions of Committees/Departments/Offices

Committees and Head Office Departments

Management Committee

Examines and manages Bank-wide issues regarding the Bank's operations. The members of this committee comprise the Deputy Governors and all Executive Directors.

Compliance Committee

Ensures that the officers and employees perform their duties fairly and in compliance with the relevant laws and regulations. The members of this committee comprise members appointed from among the Deputy Governors and Executive Directors by the Governor, the Director-General of the Internal Auditors' Office, and one or more legal experts from outside the Bank.

Secretariat of the Policy Board

(1) Arranges proceedings for Policy Board meetings, (2) liaises with the Diet and the media, (3) reviews the content and wording of important documents, and offers a legal perspective on them, (4) plans and formulates measures relating to the Bank's business operations and organizational management, (5) handles the Bank's budget, settlement, and accounting, (6) provides administrative services for the Bank's officers, and (7) supports Auditors in auditing.

Internal Auditors' Office

Audits the Bank's business operations.

Monetary Affairs Department

Plans and formulates monetary policy measures.

Financial System and Bank Examination Department

(1) Plans and formulates measures that contribute to the maintenance of an orderly financial system, (2) conducts on-site examinations and off-site monitoring of financial institutions that hold current accounts at the Bank, (3) judges financial institutions' eligibility to hold current accounts at the Bank and to have access to its lending facilities, and (4) determines the specifics of credit extension and discounting of bills by the Bank.

Payment and Settlement Systems Department

Plans and formulates measures in the following areas: (1) policy issues relating to payment and settlement systems; (2) financial institutions' access to payment and settlement services provided by the Bank; and (3) the Bank's business continuity planning.

Financial Markets Department

(1) Determines the specifics of daily market operations, (2) conducts foreign exchange interventions, (3) works toward improving the functioning of Japanese financial markets, including the foreign exchange market, and (4) monitors and analyzes developments in financial markets in Japan as well as overseas, including foreign exchange markets.

Research and Statistics Department

(1) Conducts research on the domestic economy and fiscal situation, and (2) compiles and releases statistics.

International Department

(1) Liaises and coordinates with overseas central banks and international organizations, (2) makes arrangements for investment in yen assets by overseas central banks, and conducts operations aimed at providing international financial support, (3) manages foreign currency assets held by the Bank, (4) conducts research on global economic and financial conditions, and (5) compiles Japan's balance of payments and other such statistics.

Currency Issue Department

(1) Conducts planning and operations relating to banknotes, and (2) conducts payment/receipt of coins, and examines and takes custody of them.

Operations Department

Conducts banking operations including the following: (1) discounting of bills; (2) credit extension; (3) purchasing/selling of bills, Japanese government securities, and other securities; (4) borrowing/lending of securities with cash collateral; (5) accepting of deposits; (6) domestic funds transfers; (7) handling of treasury funds; and (8) operations relating to stocks purchased by the Bank.

Information System Services Department

Manages the development and operation of the Bank's computer systems.

Public Relations Department

(1) Conducts public relations activities, (2) administers the Bank's library, and (3) works toward raising public awareness and understanding of financial and economic issues.

Personnel and Corporate Affairs Department

Handles business in corporate affairs, personnel policy issues relating to recruitment, assessment of job performance, career planning and training, wages and salaries, and the Bank's code of ethics.

Administration Department

Conducts administrative operations relating to the Bank's facilities, supplies, security, and transportation.

Institute for Monetary and Economic Studies

(1) Studies theoretical, institutional, technological, and historical aspects of monetary and economic issues, (2) collects, preserves, and exhibits historical materials and documents related to monetary and economic issues, and (3) exchanges views with academics.

Branches and Offices

Branches

The 32 branches mainly conduct operations relating to currency issue and banking operations, and research on the economic and financial situation in their respective areas.

Local Offices in Japan

The Computer Center in Fuchu City, Tokyo, operates the Bank's systems. The Banknote Operations Center in Toda City, Saitama Prefecture, receives, pays, and stores banknotes. The other 12 local offices handle some of the operations of the Head Office or branches.

Overseas Representative Offices

The seven overseas representative offices perform a liaison function, gather information, and conduct research.

A map showing the locations of the Bank's Head Office, branches, local offices, and museums: The Bank's Head Office is in Tokyo. Its 32 branches are located in the cities of Kushiro, Sapporo, Hakodate, Aomori, Akita, Sendai, Fukushima, Maebashi, Yokohama, Niigata, Kanazawa, Kofu, Matsumoto, Shizuoka, Nagoya, Kyoto, Osaka, Kobe, Okayama, Hiroshima, Matsue, Shimonoseki, Takamatsu, Matsuyama, Kochi, Kitakyushu, Fukuoka, Oita, Nagasaki, Kumamoto, Kagoshima, and Naha. It has 12 local offices located in the cities of Mito, Obihiro, Asahikawa, Morioka, Yamagata, Toyama, Fukui, Nagano, Tottori, Tokushima, Saga, Miyazaki. There are 2 other local offices: the Computer Center in Fuchu City, Tokyo, and the Banknote Operations Center in Toda City, Saitama Prefecture. The Bank also has 2 museums: Otaru Museum in Hokkaido Prefecture and the Currency Museum in Tokyo.

A map showing the locations of the Bank's 7 overseas representative offices: The offices are located in the cities of New York, Washington, D.C., London, Paris, Frankfurt, Hong Kong, and Beijing.

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The Bank's Business Operations

I. Monetary Policy

The Bank of Japan decides and implements monetary policy under the price stability target of 2 percent in terms of the year-on-year rate of change in the consumer price index (CPI), with the aim of achieving price stability and thereby contributing to the sound development of the national economy, as stipulated in Article 2 of the Bank of Japan Act (hereafter the Act). Monetary policy is decided by the Policy Board at Monetary Policy Meetings (MPMs), and market operations -- the Bank's day-to-day provision and absorption of funds in the market -- are carried out based on the guideline decided at each MPM. The Bank held eight MPMs in fiscal 2017.

The Bank releases each quarter the Outlook for Economic Activity and Prices (hereafter the Outlook Report) after the Policy Board has decided the text of "The Bank's View" section at MPMs held, in principle, in January, April, July, and October. In the Outlook Report, the Bank presents its outlook for developments in economic activity and prices, assesses upside and downside risks, and outlines its views on the future conduct of monetary policy. For MPMs other than the above, the Policy Board members' assessment of the economic and financial situation is expressed in the statement on monetary policy released after each MPM.

In order to make appropriate policy decisions, the Bank conducts research and analysis on economic and financial developments at home and abroad. Major findings are reflected in the Bank's releases including the Outlook Report and the Regional Economic Report. The Bank also conducts fundamental studies on economic and financial issues; it publishes the major findings in the Bank of Japan Working Paper Series, the Bank of Japan Research Laboratory Series, and in research papers released by the Institute for Monetary and Economic Studies (IMES), specifically in the Monetary and Economic Studies and the IMES Discussion Paper Series.¹

The Bank, pursuant to Article 54, paragraph 1 of the Act, prepares the Semiannual Report on Currency and Monetary Control approximately every six months, covering matters related to the conduct of monetary policy (those listed in the items of Article 15, paragraph 1 of the Act) and business operations that the Bank has conducted based thereon, and submits it to the Diet through the Minister of Finance. In the most recent two issues of this report, the Bank explains in detail economic and financial developments as well as the Bank's conduct of monetary policy and market operations during fiscal 2017.²

Notes:

1. 1Papers and statistics as well as lists of the Bank's publications in English are available on the Bank's website and on the IMES website; for a list of the Bank's major publications and reports, see III. Publications and Reports under Information.
2. 2The summaries of these two issues in English are available on the Bank's website; for excerpts from these summaries, see II. Review of Economic and Financial Developments and Monetary Policy Meetings under The Bank's Review of Fiscal 2017. The full texts are available in Japanese on the Bank's website.

II. Financial System Policy

One of the core purposes of the Bank, as stipulated in Article 1, paragraph 2 of the Act, is to ensure smooth settlement of funds among banks and other financial institutions, thereby contributing to the maintenance of financial system stability. To this end, the Bank provides safe and convenient settlement assets in the form of deposits in current accounts that financial institutions hold at the Bank, and takes measures to enhance the safety and efficiency of payment and settlement systems. In order to ensure financial system stability, the Bank also takes various measures to make sure that a financial institution's inability to complete settlement of a transaction does not result in a chain of settlement failures at other institutions and thus disrupt the overall functioning of the financial system.

Specifically, the Bank may provide financial institutions suffering a shortage of liquidity with the following: (1) loans against collateral in the form of securities, pursuant to Article 33, and/or (2) other forms of liquidity, in its role as the lender of last resort, pursuant to Articles 37 and 38 of the Act.

In order to be ready to act effectively as the lender of last resort, the Bank strives to gain an accurate grasp of the business conditions at financial institutions and to encourage the maintenance of sound financial conditions, offering guidance and advice as necessary, through the conduct of on-site examinations (examinations that the Bank carries out by visiting the premises of financial institutions pursuant to Article 44 of the Act) as well as off-site monitoring (monitoring that is conducted through meetings with executives and staff of financial institutions, as well as through analysis of various documents submitted by these institutions) (Tables 1 and 2). In addition, through activities such as seminars and workshops organized by the Bank's Center for Advanced Financial Technology (CAFT), the Bank encourages financial institutions' efforts to improve their risk management and business management.

The Bank conducts research and analysis assessing risks in the financial system as a whole, i.e., taking a macroprudential perspective, by making use of insights obtained through its on-site examinations and off-site monitoring and paying due attention to the interconnectedness of the real economy, financial markets, and the behavior of financial institutions. The findings of this research and analysis are published in various forms -- for example, the Financial System Report -- and the Bank draws on them when taking part in initiatives with relevant parties to ensure the stability of the financial system. These findings are also made use of in developing and implementing policy. The Bank has also been participating in international initiatives to maintain the stability of the global financial system. These include discussions held by the Basel Committee on Banking Supervision, which comprises central banks and supervisory authorities from major countries.

The Bank, as and when necessary, conducts business requisite to maintaining financial system stability, including the provision of loans, pursuant to Article 38 of the Act (hereafter the term "special loans" covers all such business). The Bank decides on the extension of special loans based on the following four principles, taking into account the nature and purpose of the lender-of-last-resort function:

Principle 1

There must be a strong likelihood that systemic risk will materialize.

Principle 2

There must be no alternative to the provision of central bank money.

Principle 3

All relevant parties are required to take clear responsibility to avoid moral hazard.

Principle 4

The financial soundness of the Bank of Japan itself must not be impaired.

Note:

1. 1Figures in parentheses indicate the number of institutions as of the end of fiscal 2016.

Notes:

1. 1Established and licensed under Japanese legislation, excluding the Bank and government-related organizations.
2. 2Including financial instruments business operators and Japanese branches of foreign banks.

III. Enhancement of Payment and Settlement Systems and Market Infrastructure

The Bank provides safe and convenient settlement assets in the form of banknotes and deposits in current accounts that financial institutions hold at the Bank. In addition, the Bank conducts settlement for Japanese government securities (JGSs) in its role as the book-entry transfer institution in the Japanese government bond (JGB) Book-Entry System. To ensure the safety and efficiency of these services, the Bank operates a computer network system for the settlement of funds and JGSs, the Bank of Japan Financial Network System (BOJ-NET).

The Bank conducts oversight of payment and settlement systems, monitoring their safety and efficiency and inducing improvements where necessary. Moreover, the Bank participates with other central banks in various international discussions and initiatives related to payment and settlement systems, including those of the Committee on Payments and Market Infrastructures (CPMI) at the Bank for International Settlements (BIS).

In addition, in order to strengthen and improve the efficiency of the functioning of markets as well as to support more robust risk management and innovation in financial services and market transactions, the Bank, with an eye on international developments, takes initiatives to reinforce the infrastructures of financial and capital markets -- exchanging views with market participants, supporting the formulation of additional rules on and revisions of market practices, and compiling and releasing statistics on market transactions. As part of its initiatives, the Bank has continued to enhance its business continuity arrangements in preparation for times of disaster or other emergency, and has provided active support to market participants in developing effective business continuity planning (BCP) in financial markets, payment and settlement systems, and the financial system.

In order to effectively implement measures to enhance payment and settlement systems and market infrastructure, the Bank conducts research and analysis on the safety and efficiency of payment and settlement systems as well as on the financial system and financial markets, in addition to fundamental research on related issues. Major findings are reflected in the Bank's releases including the Payment and Settlement Systems Report.

IV. International Operations

The Bank conducts operations in the field of international finance, such as foreign exchange transactions, including those executed as part of the Bank's management of its foreign currency assets, as well as business related to assisting other central banks and international organizations in their investment in yen. The Bank also handles government affairs that relate to international finance, such as the compilation and dissemination of Japan's balance of payments statistics and foreign exchange intervention.

In addition, the Bank takes part in international discussions on the state of the world economy as well as on measures to ensure the stability and improve the structure of financial markets. The Bank participates in various forums, such as meetings of the Group of Twenty (G-20), the Group of Seven (G-7), the International Monetary Fund (IMF), the BIS, and the Financial Stability Board (FSB), as well as other meetings of monetary authorities including central banks in Asia.

With regard to Asia, the Bank engages in various activities including the following: the promotion of monetary cooperation mainly through participation in the Executives' Meeting of East Asia-Pacific Central Banks (EMEAP) and the Association of Southeast Asian Nations Plus Three (ASEAN Plus Three); the strengthening of technical cooperation and staff training with a view to ensuring financial and economic stability; and the conduct of research on the region.

V. Issuance, Circulation, and Maintenance of Banknotes

The Bank, as the country's sole issuer of banknotes (Bank of Japan notes), ensures the stability of banknote supply and maintains public confidence in banknotes through the conduct of the following operations at its Head Office and branches in Japan. First, the Bank receives banknotes from and pays banknotes to financial institutions that hold current accounts at the Bank (BOJ account holders). Second, the Bank counts the banknotes it receives from BOJ account holders, examines them to verify their authenticity, and checks their fitness for recirculation. As for coins, they are delivered to the Bank by the government, which is the authorized issuer of coins, and then put into circulation.

As part of its measures to secure confidence in banknotes and coins, the Bank works to maintain the cleanliness of banknotes in circulation by preventing damaged or worn banknotes from being returned to circulation. In addition, the Bank remains active in advancing research and promoting public understanding regarding counterfeit deterrence and the smooth circulation of currency, in cooperation with relevant institutions at home and abroad, including other central banks.

VI. Services Relating to the Government

The Bank provides various services relating to the government, such as treasury funds and JGS services. Specifically, these are (1) receipt, disbursement, and accounting of treasury funds (the Bank classifies receipts and disbursements of treasury funds by the specific government account as well as by the individual government agency), (2) management of the deposits of the Japanese government, (3) custody of securities acquired by or submitted to the government, (4) issuance of, and principal and interest payment on, JGSs, and (5) operations relating to its role as the book-entry transfer institution in the JGB Book-Entry System. For the convenience of the public, the Bank designates certain branches and offices of financial institutions throughout the country as its agents and entrusts them with some of the services relating to treasury funds and JGSs.

Besides the above operations, the Bank engages in various transactions with the government, such as purchasing and selling of JGSs.

VII. Communication with the Public

With a view to satisfying the requirements of public accountability, the Bank releases in a timely manner a document that contains a summary of the opinions presented at each MPM (Summary of Opinions), the minutes of MPMs, and public statements on most of the Policy Board decisions. The Bank actively provides information through a variety of channels including the following: reporting to and attendance at the Diet; press conferences held and speeches delivered by the Bank's officers; and the Bank's website. Transcripts of MPMs held more than 10 years previously are also released.

To promote better understanding of the policies and business operations of the Bank, not only in the eyes of financial professionals but also of the public as a whole, the Bank endeavors to tailor its publications and releases to the diverse needs and interests of their users. It also works to promote financial literacy among the public.

The Bank compiles and releases various statistics to be widely shared with the public and takes steps to refine its statistics to improve their user-friendliness.

Meanwhile, the Bank discloses information in accordance with the Act on Access to Information Held by Independent Administrative Agencies.

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The Bank's Review of Fiscal 2017

I. Introduction

In March 2014, the Bank of Japan formulated and released "The Bank of Japan's Strategic Priorities for Fiscal 2014-2018."¹ In this document, the Bank adopts a new five-year framework, the content of which will be kept basically unchanged for the whole period, with a view to (1) clarifying the Bank's objectives to be achieved over the medium term and (2) properly evaluating its progress in achieving these. The Bank conducts and makes public performance reviews of measures taken under the Strategic Priorities every fiscal year.

This section provides a brief review of economic and financial developments and decisions made at Monetary Policy Meetings (MPMs) in fiscal 2017, followed by performance reviews of measures taken under the Strategic Priorities. Each performance review is divided into two parts: a description of progress in implementing specific measures during fiscal 2017 for each of the strategic objectives for its business operations laid out in the Strategic Priorities, and the Bank's evaluation of that progress. The Bank's performance with regard to the strategic objectives for its organizational management is described in The Bank's Organizational Management in Fiscal 2017.

The Strategic Priorities states that the Bank shall conduct an interim review of the content of the Strategic Priorities during the five-year period in order to address any changes in its environment and revise the content flexibly in response to any significant such changes. In fiscal 2016, the Bank conducted the interim review and decided to maintain the current content. A thorough review of the entire content of the Strategic Priorities will be conducted separately.

Notes:

1. 1For the text of "The Bank of Japan's Strategic Priorities for Fiscal 2014-2018," see Appendix 2.

II. Review of Economic and Financial Developments and Monetary Policy Meetings²

A. First Half of Fiscal 2017 (April-September 2017)

1. Economic developments

1. a. Looking back at the first half of fiscal 2017, Japan's economy was expanding moderately, with a virtuous cycle from income to spending operating.

   Exports followed an increasing trend on the back of growth in overseas economies. Turning to domestic demand, public investment increased, and housing investment was more or less flat. Business fixed investment was on a moderate increasing trend, with corporate profits improving. Private consumption increased its resilience against the background of steady improvement in the employment and income situation. Reflecting these developments in demand both at home and abroad, industrial production followed an increasing trend.

2. b. On the price front, the year-on-year rate of change in the consumer price index (CPI, all items less fresh food) was in the range of 0.5-1.0 percent, with the rate of increase accelerating. Inflation expectations remained in a weakening phase, although some indicators showed an uptrend in such expectations, after hitting bottom around summer 2016.

2. Financial developments

1. a. Money market rates were at low levels on the whole.

   Turning to developments in the bond market, the long-term interest rate was stable at the target level of around zero percent under Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control.

   The Nikkei 225 Stock Average rose, mainly on the back of favorable corporate earnings, amid a rise in stock prices in the United States and Europe, and was in the range of 20,000-20,500 yen at end-September.

   In the foreign exchange market, the yen was more or less flat against the U.S. dollar, albeit with fluctuations, and was in the range of 112-113 yen at end-September. The yen continued to depreciate against the euro with uncertainties regarding political situations in Europe abating, and was in the range of 132-133 yen at end-September.

2. b. As for corporate finance, in terms of credit supply, financial institutions' lending attitudes as perceived by firms were highly accommodative.

   Firms' credit demand increased, mainly for funds related to mergers and acquisitions and funds for business fixed investment. With regard to firms' funding, the year-on-year rate of increase in the amount outstanding of lending by domestic commercial banks accelerated at a moderate pace, and was at around 3 percent as of September. The year-on-year rates of change in the amounts outstanding of CP and corporate bonds were positive at relatively high levels.

3. c. The monetary base (currency in circulation plus current account balances at the Bank) continued to increase at a high year-on-year growth rate in the range of 15-20 percent. The year-on-year rate of change in the money stock (M2) was at around 4 percent.

3. MPMs³

a. Four MPMs were held in the first half of fiscal 2017.

At the MPMs held in April and June, the Policy Board judged that Japan's economy was turning toward a moderate expansion. At the MPMs held in July and September, it judged that the economy was expanding moderately, with a virtuous cycle from income to spending operating.

b. In the conduct of monetary policy, at all the MPMs held in the first half of fiscal 2017, the Policy Board decided to continue with the following guidelines for market operations and asset purchases under QQE with Yield Curve Control determined at the MPM held in September 2016.

1. (1) Yield curve control

   The Bank decided to set the following guideline for market operations for the intermeeting period.

   The short-term policy interest rate:

   The Bank will apply a negative interest rate of minus 0.1 percent to the Policy-Rate Balances in current accounts held by financial institutions at the Bank.

   The long-term interest rate:

   The Bank will purchase Japanese government bonds (JGBs) so that 10-year JGB yields will remain at around zero percent. With regard to the amount of JGBs to be purchased, the Bank will conduct purchases at more or less the current pace -- an annual pace of increase in the amount outstanding of its JGB holdings of about 80 trillion yen -- aiming to achieve the target level of the long-term interest rate specified by the guideline.

2. (2) Guidelines for asset purchases

   With regard to asset purchases other than JGB purchases, the Bank decided to set the following guidelines.

   1. (a) The Bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at annual paces of about 6 trillion yen and about 90 billion yen, respectively.
   2. (b) As for CP and corporate bonds, the Bank will maintain their amounts outstanding at about 2.2 trillion yen and about 3.2 trillion yen, respectively.

   With regard to the future conduct of monetary policy, the Policy Board confirmed the following at all the MPMs held in the first half of fiscal 2017: "the Bank will continue with QQE with Yield Curve Control, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. It will continue expanding the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds 2 percent and stays above the target in a stable manner. The Bank will make policy adjustments as appropriate, taking account of developments in economic activity and prices as well as financial conditions, with a view to maintaining the momentum toward achieving the price stability target."

B. Second Half of Fiscal 2017 (October 2017-March 2018)

1. Economic developments

1. a. Looking back at the second half of fiscal 2017, Japan's economy was expanding moderately, with a virtuous cycle from income to spending operating.

   Exports followed an increasing trend on the back of firm growth in overseas economies. Turning to domestic demand, housing investment weakened somewhat after having been more or less flat, and public investment was more or less flat, remaining at a relatively high level. On the other hand, business fixed investment was on an increasing trend with corporate profits and business sentiment maintaining their improving trend. Private consumption increased moderately, albeit with fluctuations, against the background of steady improvement in the employment and income situation. Reflecting these developments in demand both at home and abroad, industrial production followed an increasing trend.

2. b. On the price front, the year-on-year rate of change in the CPI (all items less fresh food) was around 1 percent, with the rate of increase accelerating. Inflation expectations were more or less unchanged, after having remained in a weakening phase since summer 2015.

2. Financial developments

1. a. Money market rates were at low levels on the whole.

   Turning to developments in the bond market, the long-term interest rate was stable at the target level of around zero percent under QQE with Yield Curve Control.

   The Nikkei 225 Stock Average rose to the range of 24,000-24,500 yen in late January, mainly on the back of favorable corporate earnings, amid a rise in stock prices in the United States and Europe. It then temporarily declined substantially with a global fall in stock prices in early February and remained more or less flat thereafter, albeit with fluctuations, being in the range of 21,000-21,500 yen at end-March.

   In the foreign exchange market, the yen was more or less flat against the U.S. dollar through end-2017, and then appreciated amid the dollar depreciating against many currencies. Thereafter, the yen continued to appreciate against the U.S. dollar, mainly reflecting buying of yen as safe assets with a global fall in stock prices in early February, and was in the range of 106-107 yen at end-March. The yen was more or less flat against the euro, with fluctuations smoothed out.

2. b. As for corporate finance, in terms of credit supply, financial institutions' lending attitudes as perceived by firms were highly accommodative.

   Firms' credit demand increased, mainly for funds for business fixed investment. With regard to firms' funding, the year-on-year rate of increase in the amount outstanding of lending by domestic commercial banks was in the range of around 2.0-2.5 percent. The year-on-year rates of change in the amounts outstanding of CP and corporate bonds were positive at relatively high levels.

3. c. The monetary base continued to increase at a high year-on-year growth rate in the range of around 10-15 percent. The year-on-year rate of change in the M2 was in the range of 3.0-4.0 percent.

3. MPMs³

a. Four MPMs were held in the second half of fiscal 2017.

At all the MPMs held in the second half of fiscal 2017, the Policy Board judged that Japan's economy was expanding moderately, with a virtuous cycle from income to spending operating.

b. In the conduct of monetary policy, at all the MPMs held in the second half of fiscal 2017, the Policy Board decided to continue with the following guidelines for market operations and asset purchases under QQE with Yield Curve Control determined at the MPM held in September 2016.

1. (1) Yield curve control

   The Bank decided to set the following guideline for market operations for the intermeeting period.

   The short-term policy interest rate:

   The Bank will apply a negative interest rate of minus 0.1 percent to the Policy-Rate Balances in current accounts held by financial institutions at the Bank.

   The long-term interest rate:

   The Bank will purchase JGBs so that 10-year JGB yields will remain at around zero percent. With regard to the amount of JGBs to be purchased, the Bank will conduct purchases at more or less the current pace -- an annual pace of increase in the amount outstanding of its JGB holdings of about 80 trillion yen -- aiming to achieve the target level of the long-term interest rate specified by the guideline.

2. (2) Guidelines for asset purchases

   With regard to asset purchases other than JGB purchases, the Bank decided to set the following guidelines.

   1. (a) The Bank will purchase ETFs and J-REITs so that their amounts outstanding will increase at annual paces of about 6 trillion yen and about 90 billion yen, respectively.
   2. (b) As for CP and corporate bonds, the Bank will maintain their amounts outstanding at about 2.2 trillion yen and about 3.2 trillion yen, respectively.

   With regard to the future conduct of monetary policy, the Policy Board confirmed the following at all the MPMs held in the second half of fiscal 2017: "the Bank will continue with QQE with Yield Curve Control, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. It will continue expanding the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds 2 percent and stays above the target in a stable manner. The Bank will make policy adjustments as appropriate, taking account of developments in economic activity and prices as well as financial conditions, with a view to maintaining the momentum toward achieving the price stability target."

Notes:

1. 2The review provided here comprises excerpts from the summaries of the latest two issues of the Semiannual Report on Currency and Monetary Control submitted to the Diet in December 2017 and June 2018. The full texts of both issues in Japanese and summaries in English are available on the Bank's website.
2. 3Information related to MPMs is available on the "Monetary Policy Meetings" page on the Bank's website.

III. Performance Reviews of Measures Taken under the Strategic Priorities

A. Plan and Formulate Monetary Policy Measures That Facilitate Policy Conduct

1. Progress in implementing specific measures

1. (1) With a view to contributing to monetary policy conduct, the Bank conducted research and analysis from multiple perspectives regarding economic and financial conditions both at home and abroad, including the following: developments in overseas economies and global financial markets, as well as their implications for Japan's economy; the determinants of wages in Japan; and the impact on prices of firms' measures to address labor shortages by improving productivity.
2. (2) The Bank conducted multi-perspective analysis on the effects and impacts of monetary policy, focusing on the policy effects of QQE with Yield Curve Control, as well as the mechanism of inflation expectations formation. In addition, the Bank decided to extend the duration of operations such as the Fund-Provisioning Measure to Stimulate Bank Lending.
3. (3) The Bank enhanced dialogue with market participants through the following initiatives.
   1. (a) The Bank actively exchanged opinions on such occasions as the "Meeting on Market Operations" and the "Bond Market Group," each of which was held twice in fiscal 2017.
   2. (b) The Bank expanded the diversity of its Bond Market Survey respondents and enhanced the content of Liquidity Indicators in the JGB Markets, with a view to broadening and deepening its perspective on bond market liquidity and functioning and to facilitating dialogue with market participants.
4. (4) Progress was made in fundamental research on the following: monetary policy; the macroeconomy; financial markets; legal and accounting systems, and information security, in finance-related fields; and monetary history. The Bank communicated its research findings to the public through the release of research papers and presentations at academic conferences both at home and abroad.

2. Evaluation of progress

With a view to contributing to monetary policy conduct, the Bank conducted research and analysis from multiple perspectives regarding economic and financial conditions both at home and abroad; it also carried out multi-perspective analysis on the effects and impacts of monetary policy. In light of its analysis, the Bank planned and formulated monetary policy measures flexibly. In addition, the Bank enhanced dialogue with market participants through, for example, the "Meeting on Market Operations" and the "Bond Market Group," and made steady adjustments to its operational arrangements so as to ensure that monetary policy continued to be conducted appropriately.

Based on the above, the Bank considers that, in fiscal 2017, it achieved its intended objectives in implementing measures and provided a firm underpinning for monetary policy conduct. In fiscal 2018, the Bank will continue to work to have the necessary arrangements in place to conduct research and analysis that appropriately reflects changes in economic and financial conditions, to plan policy measures flexibly, and to conduct market operations properly.

B. Ensure Stability and Improve the Functioning of the Financial System

1. Progress in implementing specific measures

1. (1) In line with the "On-Site Examination Policy for Fiscal 2017," the Bank conducted on-site examinations of financial institutions flexibly and efficiently in light of the extent of their influence on the financial system and their risk profiles; it also conducted "targeted on-site examinations" that had a more limited scope in terms of areas subject to examination, so as to allow the Bank efficiently and effectively to ascertain and assess the profitability of regional financial institutions and examine their management of market risk. Under this policy, the Bank carried out examinations of 100 financial institutions. It conducted thorough assessments, for example, of financial institutions' business operations and asset quality as well as their profitability and resilience against risks, including the actual business conditions of their financial group as a whole and the risk management of their overseas branches and subsidiaries.
2. (2) With regard to off-site monitoring, the Bank held in-depth interviews with financial institutions and secured a sound understanding of their business activities in areas where they had adopted a proactive risk-taking stance. It also gained a better grasp of the effects and impacts on financial institutions of QQE with Yield Curve Control and continued to deepen its understanding of their business conditions, such as business operations, risk management, and profitability. In addition, the Bank sharpened its focus on business conditions at systemically important financial institutions by taking into account the systemic implications of, for example, the active expansion of their global business and the accompanying risks such as those associated with the need to ensure foreign currency liquidity. It also encouraged such institutions' efforts to improve their risk management, for example, through exchanging views with them.
3. (3) In the two issues of the 2017 Financial System Report, released in April and October, the Bank, while refining scenarios for its macro stress testing and enhancing its analysis, examined financial intermediation by Japanese financial institutions and current conditions in the financial system; it also conducted assessments that focused particularly on the structural factors behind as well as the impacts of low profitability and intensified competition among financial institutions. In addition, the Bank continued to share awareness of challenges and risks, particularly with financial institutions, through the following initiatives in fiscal 2017: releasing four issues of the Financial System Report Annex Series providing more detailed analysis of and insight into selected topics; actively communicating with financial institutions, analysts, the media, academics, and other relevant parties, mainly through holding seminars and giving presentations at various international meetings (there were 80 such occasions in total); and pursuing dialogue with the boards of directors of financial institutions through on-site examinations and off-site monitoring.
4. (4) The Bank further strengthened cooperation on the macroprudential front with the Financial Services Agency (FSA) by, for example, holding regular joint meetings -- twice in fiscal 2017 -- and sharing awareness of challenges and risks at all levels.
5. (5) The Bank continued its stable execution of business operations for the Loan Support Program.
6. (6) The Bank, with a view to maintaining an appropriate grasp of business operations and asset quality at financial institutions with which it conducts transactions, made revisions to the "Inquiries Agreement" and related rules such as the "Criteria for Parties Eligible to Hold Current Accounts with the Bank and That Have Access to the Bank's Lending."
7. (7) The Bank hosted large-scale seminars on topics such as operational reforms. It also held, for example, a series of workshops on utilizing IT to advance financial technology and various regional workshops.

2. Evaluation of progress

The Bank conducted thorough assessments particularly of business operations and risk management at financial institutions and facilitated necessary improvements through the following: in the Financial System Report, it presented its assessment of challenges and risks faced in maintaining and improving the stability and functioning of the financial system, and conducted on-site examinations and improved off-site monitoring based on this assessment. In addition, the Bank deepened dialogue with regional financial institutions on the key management issues and challenges facing them, such as strengthening their core profitability in an environment of low interest rates and population decline. Moreover, it sharpened its focus on business conditions at systemically important financial institutions, taking into account the extent of their systemic implications, and facilitated necessary improvements.

The Bank carried out, in an efficient and appropriate manner, the selection of financial institutions with which to conduct transactions as well as business operations relating to the provision of loans. It also further strengthened cooperation on the macroprudential front with the relevant authority.

During fiscal 2017, there were no circumstances that required the Bank to provide loans pursuant to Articles 37 and 38 of the Bank of Japan Act.

Based on the above, the Bank considers that it steadily tackled challenges in maintaining and improving the stability and functioning of the financial system in the face of financial institutions' macro risks and structural changes in the financial system, and that its intended effects were thereby achieved. In fiscal 2018, the Bank will work strenuously to identify challenges and risks faced in maintaining and improving the stability and functioning of the financial system, and to deepen its understanding of the situation on the ground, for example, regarding business operations and risk management at financial institutions. The Bank will also work further to share with relevant parties a common understanding of the current situation and challenges facing financial institutions and the financial system.

C. Enhance Payment and Settlement Services and Reinforce Market Infrastructure

1. Progress in implementing specific measures

1. (1) Looking to enhance Japan's payment and settlement services using the Bank of Japan Financial Network System (BOJ-NET), the Bank implemented the following initiatives in consultation with financial institutions and relevant parties.
   1. (a) In April 2017, the Bank released the results of a survey on cross-border yen payment services provided by banks, which was conducted to research and analyze potential demand by firms for such services as well as issues involved in offering them during the evening and night hours in Japan.
   2. (b) The Bank established the operational framework necessary to implement Global Access, which allows BOJ-NET participant financial institutions access to the BOJ-NET from terminals in their overseas offices, and began accepting applications in December 2017.
2. (2) The Bank continued with its deliberations and coordination with other central banks and relevant parties regarding issues that remain on the way to realizing payment and settlement for cross-border transactions in yen or JGBs. In April 2018, the Bank announced that in fiscal 2018 it will commence preparation with the Hong Kong Monetary Authority toward implementation of a cross-border delivery-versus-payment (DVP) link between BOJ-NET JGB services and the Hong Kong Dollar Clearing House Automated Transfer System (HKD CHATS).
3. (3) The Bank worked toward the enhancement of Japan's retail payment systems through, for example, support for deliberations on the specifics of extending the operating hours of the Zengin Data Telecommunication System (Zengin System) as well as on realizing financial electronic data interchange (EDI).
4. (4) The Bank participated in various meetings held by the Financial Stability Board (FSB) regarding collection of trading data, such as on repos, and made steady progress with preparations for the start of the FSB's global data collection at the end of 2018, holding three seminars for reporting institutions in fiscal 2017.
5. (5) The Bank supported market participants' efforts to move to a T+1 JGB settlement cycle for outright transactions, which was implemented in May 2018. At the same time, settlement for JGB auctions was also shifted, in principle, to a T+1 settlement cycle, and the Bank proceeded steadily with preparations to achieve this.
6. (6) In light of the development of the FX Global Code, the Bank released a Statement of Commitment to the code in January 2018, and encouraged market participants in Japan to similarly demonstrate adherence to the code.
7. (7) The Bank contributed to discussions with market participants on the reform of interest rate benchmarks, as follows.
   1. (a) The Bank assisted in the implementation of the Japanese Bankers Association (JBA) TIBOR reform by the JBA TIBOR Administration, which took effect in July 2017.
   2. (b) The Bank supported market participants' initiatives in its role as the secretariat of the Study Group on Risk-Free Reference Rates.
8. (8) The Bank continued to cooperate in the conduct of more practical exercises to test business continuity arrangements across markets; specifically, upon request from market participants, in the market-wide joint exercise in October 2017, the Bank provided loans to exercise participants from the money market, securities markets, and foreign exchange market through Funds-Supplying Operations against Pooled Collateral.
9. (9) The Bank's FinTech Center played a leading role in collecting and communicating information as well as carrying out related research through, for example, the FinTech Forum -- twice in fiscal 2017 -- and a conference on artificial intelligence (AI) and financial services in April 2017. Moreover, the Bank and the European Central Bank (ECB) conducted joint research on the possible use of distributed ledger technology for market infrastructure and released their findings in September 2017 and March 2018.

2. Evaluation of progress

The Bank made progress broadly as scheduled in: (1) the implementation of initiatives toward the enhancement of payment and settlement services, for example through commencing the acceptance of applications for Global Access; and (2) deliberations and coordination with other central banks and relevant parties regarding issues that remain on the way to realizing payment and settlement for cross-border transactions in yen or JGBs.

As for the reinforcement of the infrastructures of financial and capital markets, the Bank steadily proceeded with efforts relating to the demonstration of adherence to the FX Global Code and advanced measures for the collection of trading data, such as on repos. It also supported market participants' initiatives on shortening the JGB settlement cycle, TIBOR reform, and the introduction of risk-free reference rates.

Meanwhile, the Bank also collected and communicated information and carried out research related to FinTech in an appropriate manner.

Based on the above, the Bank considers that it made steady progress in fiscal 2017 in terms of measures taken to contribute to the enhancement of payment and settlement services and the reinforcement of the infrastructures of financial and capital markets in Japan. In fiscal 2018, the Bank will continue to support market participants' efforts to move to a T+1 JGB settlement cycle for outright transactions, and to facilitate deliberations on the use of risk-free reference rates. In addition, it will continue efforts to encourage market participants to demonstrate adherence to the FX Global Code as well as to support their initiatives toward the collection of trading data, such as on repos. The Bank will also work to collect and communicate information, and to carry out research related to FinTech.

D. Conduct Stable and Efficient Central Banking Operations

1. Progress in implementing specific measures

1. (1) The Bank continued, on a daily basis, to settle financial transactions involving current account deposits that financial institutions hold at the Bank in an accurate and stable manner, and conducted market operations appropriately in accordance with the guidelines decided at MPMs for market operations and asset purchases.

2. (2) The Bank ensured the smooth supply of clean banknotes from its Head Office and branches and maintained the cleanliness of banknotes in circulation by examining the banknotes it received. As part of the process, it continued to monitor and improve the level of the cleanliness of banknotes in circulation.

3. (3) The Bank moved forward, as scheduled, with the replacement of automatic banknote examination machines, continuing with installations of the new model at its branches.

4. (4) The Bank continued to maintain, by gathering information from relevant parties, a firm grasp of changes in cash delivery routes and conducted cash transportation and other operational procedures efficiently.

5. (5) The receipt and payment of coins at a coin delivery center outside the Bank's premises managed by a private security and transportation company were carried out smoothly. With a view to further smoothing the circulation of coins, the Bank released revised guidelines (available only in Japanese) for their receipt and payment, which took effect in April 2018.

   There was, however, an incident of misconduct in which an employee of the Bank stole commemorative coins held at the Bank's Head Office.

6. (6) The Bank carried out a wide range of treasury funds and Japanese government securities (JGS) services with precision, while working toward more streamlined online processing of treasury funds.

7. (7) In cooperation with the relevant ministries and government agencies, the Bank contributed to the smooth issuance of government bonds as special condolence to the bereaved families of the war dead for the 10th time.

2. Evaluation of progress

With regard to banking operations, the Bank continued to settle financial transactions involving current account deposits that financial institutions hold at the Bank in an accurate and stable manner, and conducted market operations appropriately in accordance with the guidelines decided at MPMs.

As for business operations relating to banknotes, the Bank made progress in securing confidence in banknotes, for example, proceeding smoothly with replacing automatic banknote examination machines with the new model. The Bank also made progress in firmly grasping the current situation of cash circulation by gathering information from relevant parties. Progress was also made in business operations relating to coins; the receipt and payment of coins at a coin delivery center outside the Bank's premises were carried out smoothly. However, public confidence in the stability of the Bank's business operations was undermined by an employee's misconduct involving commemorative coins.

The Bank carried out a wide range of treasury funds and JGS services with precision, while working toward more streamlined online processing of treasury funds.

Based on the above, the Bank considers that, in fiscal 2017, it conducted stable and efficient central banking operations overall, while reviewing its business processes in response to changes in its operational environment. As regards business operations relating to coins, the Bank reviewed and revised its operational framework so as to prevent any recurrence of misconduct and to ensure strict compliance with the rules in handling coins. In fiscal 2018, the Bank, through these efforts, will work to restore public confidence in the stability of its business operations. It will also continue constantly to pursue excellence in central banking services, in view of trending changes in both the quality and quantity of its operations.

E. Contribute to the Response to Globalization on the International Financial Front

1. Progress in implementing specific measures

1. (1) The Bank, as the central bank of Japan, actively participated in meetings such as those organized by the Bank for International Settlements (BIS), the FSB, the Executives' Meeting of East Asia-Pacific Central Banks (EMEAP), the Group of Twenty (G-20), the Group of Seven (G-7), the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), and the Association of Southeast Asian Nations Plus Three (ASEAN Plus Three), thereby achieving the following.
   1. (a) The Bank played a part in discussions at global forums on fostering economic growth as well as on strengthening the robustness of the financial system based on its analysis of current overseas economic and financial developments, while also promoting understanding of its conduct of monetary policy.
   2. (b) Through participation in discussions on financial regulation and supervision, the Bank, in cooperation with the FSA, contributed to progress on international financial regulatory reform that reflected Japan's viewpoints, including building a consensus on finalizing the Basel III reforms.
   3. (c) In the fields of global financial markets, financial market infrastructures, interest rate benchmarks, the code of conduct for foreign exchange markets, and statistics, the Bank contributed, for example, by writing and compiling various reports.
   4. (d) At EMEAP-related meetings, the Bank played a key role in research and analysis on economic and financial conditions as well as on payment and settlement systems in the Asian region.
   5. (e) At some EMEAP-, BIS-, and FSB-related committees, the Bank's staff played leading roles, for example, by moderating discussions as the chair.
   6. (f) The Bank participated in the Irving Fisher Committee on Central Bank Statistics (IFC), with an official serving as a member of the IFC Executive, and played a part in discussions at the global level, for example, through the presentation of papers at related conferences.
2. (2) The Bank actively exchanged information with overseas authorities on business conditions at systemically important financial institutions, mainly through supervisory colleges.
3. (3) The Bank obtained prompt access to a wide range of information, for example on economic and financial conditions, the financial system, and central banking operations, through individual exchanges of opinion with major central banks and other relevant parties as well as active strengthening of relations with monetary authorities in Asia.
4. (4) With regard to international monetary cooperation, the Bank continued with necessary deliberation on and coordination of the provision of liquidity backstops to meet the local currency funding needs of Japanese financial institutions operating overseas; for example, it enhanced the practicability of its bilateral local currency swap arrangements with the Reserve Bank of Australia and with the Monetary Authority of Singapore. As for the establishment of a cross-border collateral arrangement, whereby the central bank in a partner country provides liquidity in the local currency utilizing JGSs and Japanese yen held in custody at the Bank as collateral, the Bank proceeded to consider and coordinate an expansion in the number of Asian partners participating in such arrangements.
5. (5) Under the framework of ASEAN Plus Three, the Bank, as the central bank of the co-chair country, together with the Ministry of Finance, played a key role, for example, by taking the lead in the planning and management of currency swap exercises based on the Chiang Mai Initiative Multilateralization (CMIM).
6. (6) The Bank made appropriate arrangements for and co-hosted international meetings, including the 50th Annual Meeting of the Asian Development Bank (ADB) in Yokohama and a BIS central bank governors' meeting, both held in May 2017.
7. (7) The Bank contributed to the stability and development of financial and capital markets in Asia and established and strengthened medium- to long-term relationships with overseas authorities through providing technical assistance, holding seminars, and exchanging personnel, mainly with other central banks in Asia. Of these interactions, 55 involved staff being sent from other central banks (491 people), while 12 involved sending the Bank's staff to overseas counterparts.

2. Evaluation of progress

The Bank, as the central bank of Japan, actively participated in meetings such as those organized by the BIS and the EMEAP on topics including financial regulation, financial markets, and financial market infrastructures, and contributed to discussions toward ensuring the stability of the international currency and financial system, both as interested participant and as moderator. It boosted bilateral monetary cooperation in the Asian region and provided technical assistance, most of which also went to the Asian region. The Bank maintained and strengthened cooperation with overseas authorities, especially central banks, and obtained prompt access to a wide range of information, for example on economic and financial conditions, the financial system, and central banking operations.

Based on the above, the Bank considers that, in fiscal 2017, it made the requisite contribution as the central bank of Japan with regard to ensuring the stability of the international currency and financial system as well as securing the stability and development of financial and capital markets in Asia. In fiscal 2018, the Bank will proceed with preparations for the G-20 meetings to be held in Japan in 2019, as the central bank of the chair country, together with the Ministry of Finance. The Bank will also continue to work in cooperation with relevant parties to deepen and extend the initiatives taken to date, particularly in Asia.

F. Contribute to the Regional Economic and Financial Environment

1. Progress in implementing specific measures

1. (1) The Bank, at its Head Office and branches, conducted central banking operations, including business operations relating to banknote issuance as well as services relating to treasury funds and JGSs, in an overall stable manner, by holding working-level meetings with financial institutions that hold current accounts at the Bank as well as ministries and government agencies, as necessary.
2. (2) At each of the following branches, the Bank, in cooperation with the respective local finance bureaus, requested that financial institutions take special measures in response to disasters: Akita, Niigata, Kanazawa, Nagoya, Kyoto, Osaka, Fukuoka, and Oita.
3. (3) The Bank maintained a detailed grasp of regional economic and financial conditions via its Head Office, branches, and local offices, by, for example, conducting interviews with local businesses and financial institutions, as well as holding meetings to exchange opinions with local chambers of commerce and industry. The Bank made use of its findings in conducting monetary policy as well as in ensuring stability and improving the functioning of the financial system.
   1. (a) With regard to demand for rebuilding and reconstruction following the disaster caused by the Great East Japan Earthquake and the Kumamoto Earthquake, the Bank maintained a thorough grasp of the situation by making use of its network of branches and offices in the disaster-stricken areas.
4. (4) The Bank disseminated the results of its research and analysis on regional economic developments as well as the thinking behind its policies and business operations to each region by, for example, organizing speeches and undertaking other public relations activities. Moreover, it compiled and released each quarter its findings from research and analysis on regional economic developments in the Regional Economic Report. With a view to communicating with the public in a more effective and efficient manner, the Bank revised the content of the report starting from the April 2017 issue, and from June also began to release the annex series to the report, which provides more detailed analysis of and insight into selected topics (the annex series is available only in Japanese).
5. (5) In fiscal 2017, the Bank's Center for Advanced Financial Technology (CAFT) hosted the following seminars and workshops targeted mainly at regional financial institutions: 6 seminars on corporate governance reforms and the advancement of financial technology through the utilization of IT; also, 18 workshops on the topics of operational reforms, private finance initiatives (PFIs) and public-private partnerships (PPPs), support for start-up firms, agri-finance, support for firms making renewed efforts for business revitalization and discontinuance, and support for business succession of firms.

2. Evaluation of progress

The Bank, at its Head Office and branches, conducted central banking operations in an overall stable manner. It also maintained a detailed grasp of economic and financial conditions specific to each region through vigorous research efforts; it disseminated its findings to each region and made use of them in conducting monetary policy as well as in ensuring stability and improving the functioning of the financial system.

Based on the above, the Bank considers that, in fiscal 2017, it made the requisite contribution to the regional economic and financial environment, making due use of the functions performed as the country's central bank by its Head Office, branches, and local offices. In fiscal 2018, the Bank will continue to provide appropriate central banking services in each region of the country. It will also work particularly to maintain an accurate grasp of regional economic and financial developments and to disseminate its findings, while giving due consideration to regional revitalization.

G. Strengthen External Communication

1. Progress in implementing specific measures

1. (1) In accordance with the Bank of Japan Act, the Bank kept the public fully informed regarding its conduct of monetary policy and business operations via the following.
   1. (a) Releasing the minutes and transcripts of MPMs.
   2. (b) Submitting the Semiannual Report on Currency and Monetary Control to the Diet in June and December 2017, and releasing the full texts of the two issues in Japanese as well as the summaries in English on the Bank's website.⁴
   3. (c) Publishing the Gyoumu Gaikyo Sho (Outline of Business Operations) for fiscal 2016 in May 2017.
2. (2) The Bank made use of a variety of channels to communicate its conduct of monetary policy and business operations to the public, working to promote deeper understanding of its policy intentions. These communication channels included the following.
   1. (a) Public statements on the Bank's monetary policy decisions, such as the "Statement on Monetary Policy"; the Outlook for Economic Activity and Prices (hereafter the Outlook Report) released in April, July, and October 2017 as well as in January 2018; a document that contains a summary of the opinions presented at each MPM (Summary of Opinions); and press conferences, speeches, and articles by the Governor, Deputy Governors, and Members of the Policy Board.
   2. (b) With regard to the Outlook Report, the Bank revised the design and layout so that related text and charts now appear on the same page, mainly with a view to making "The Background" section easier to read.
3. (3) The Bank was also involved in the following public relations activities, which it sought to make clear, intelligible, and accessible to a wide range of target audiences, thereby promoting better understanding among the public of its conduct of monetary policy and business operations.
   1. (a) In addition to making the Bank's releases available on its websites, the Bank made further use of social networking sites through, for example, the launch of a Facebook page in December 2017, thereby disseminating a steady stream of up-to-date information to a wider audience. The number of page views on the Bank's website was around 206 million, of which around 103 million were made to its English-language pages. The number of page views on its branches' websites was around 3.7 million in total. Followers of the Bank's Twitter accounts totaled around 120,000.
   2. (b) The Bank continued to enhance the content of Nichigin, its public relations magazine (available only in Japanese). It also published collected offprints of each of the following series from the magazine: Taidan (Talking with the Experts: A Series of Conversations with Leaders in Their Fields), and Chiiki no Sokojikara (The Might of Regional Japan).
   3. (c) In October 2017, the Bank changed the route for in-house tours of its Head Office (for which advance reservation is necessary) due to ongoing work to reinforce the Main Building against earthquakes. The Bank's branches enhanced the content of in-house tours by, for example, adding exhibits. The total number of tour visitors to the Head Office -- including those who attended short tours on the day -- was around 19,000, while branches received around 27,000.
   4. (d) The Bank hosted various public relations events, providing opportunities for the public to deepen their understanding of the Bank's policies and business operations. These events included special in-house tours for families visiting with primary and junior high school children during school holiday seasons in spring and summer. The Bank also hosted at its Head Office the "BOJ Grand-Prix," an essay and presentation contest primarily for college students, for which there were 112 entries.
   5. (e) The Bank gave on-campus lectures to college students on the functions and operations of the Bank and offered in-house lectures combined with tours of the Bank's Head Office, with the number of these lectures totaling 39.
4. (4) The Bank actively disseminated information on its conduct of monetary policy and business operations in English.
5. (5) The Bank worked to gain a better grasp of public opinion as well as public needs regarding its policies and business operations from people across a wide range of fields via the following.
   1. (a) Holding more meetings and dialogues with financial institutions, firms, economic organizations, academics, and other parties concerned in the Bank's business operations.
   2. (b) Provision of pertinent responses to around 4,300 inquiries and comments received at the Head Office via phone calls or e-mails (excluding those for sales purposes or those that were incorrectly addressed).
6. (6) The Bank operated the Currency Museum appropriately; the number of visitors during fiscal 2017 totaled around 111,000. The Bank also operated the Bank of Japan Otaru Museum appropriately; the number of visitors during fiscal 2017 totaled around 97,000.
7. (7) The Bank responsibly managed the activities of its Archives, which have the status of "the National Archives of Japan, etc." as stipulated in the Public Records and Archives Management Act as well as the order for enforcement of this Act. A total of 3,678 historical official documents were added to the Archives, and there were a total of 133 requests for access.
8. (8) The Bank made public the findings of its research and analysis on economic and financial developments, releasing 13 papers in the Bank of Japan Review Series, 17 in the Bank of Japan Working Paper Series, 21 in the Institute for Monetary and Economic Studies (IMES) Discussion Paper Series, 3 in the Bank of Japan Research Laboratory Series, and 5 research papers.
9. (9) The Bank held the following conferences at its Head Office.
   1. (a) In May 2017, the IMES hosted an international conference entitled "Monetary Policy: Lessons Learned and Challenges Ahead."
   2. (b) In November 2017, the Bank and the University of Tokyo co-hosted a conference entitled "A New Perspective of Macroeconomic Analysis: Interaction between Business Cycles and Economic Growth."
10. (10) The Bank revised, rebased, and made appropriate enhancements to the statistics it compiled so as to accommodate changes in the economic and regulatory environment.
    1. (a) In April 2017, the Bank improved the usability of the Amounts Outstanding in the Call Money Market. It tabulated the figures for the most recent month and also the monthly figures for the past year. Moreover, it expanded the number of items available in the BOJ Time-Series Data Search from selected items only to all items.
    2. (b) In June 2017, the Bank conducted a periodical revision of broadly-defined liquidity (L) in the Money Stock Statistics (MSS) and improved the accuracy of the data.
    3. (c) In August 2017, the Bank released new items in the Regular Derivatives Market Statistics in Japan.
    4. (d) As for the Tankan (Short-Term Economic Survey of Enterprises in Japan), the Bank commenced release of data for "research and development (R&D) investment" in April 2017. It also introduced a new sampling methodology and revised the sample used in the survey in March 2018.
11. (11) Through the following measures, the Bank promoted an in-depth understanding of the statistics it compiled.
    1. (a) In July 2017, the Bank released explanations on the compilation method for the corporate goods price index (CGPI).
    2. (b) In November 2017, the Bank updated the explanations of the Flow of Funds Accounts Statistics (FFA) to reflect its data revisions.
12. (12) The Bank contributed to discussions held by the government toward making improvements to economic statistics, such as enhancing the accuracy of GDP statistics, by taking part in the Council for the Promotion of Fundamental Reform of Economic Statistics and the Statistics Commission as well as deliberations on Japan's balance of payments statistics.
13. (13) As the secretariat of the Central Council for Financial Services Information (CCFSI), and in light of changes in the environment surrounding the provision of financial information to the public, the Bank supported the CCFSI's efforts to develop a range of financial information-related activities; for example, the CCFSI developed and distributed new teaching materials for junior high school students, expanded and improved lectures to college students on financial literacy, and published user-friendly website pages including those designed for mobile devices (available only in Japanese) on the CCFSI's official website Shiruporuto (Gateway to Knowledge).

2. Evaluation of progress

The Bank employed various channels to communicate its conduct of monetary policy and business operations to the public both at home and abroad, and made efforts to promote deeper understanding of its policy intentions.

The Bank worked to gain a better grasp of public opinion and public needs by increasing dialogue with financial institutions and firms, as well as by providing pertinent responses to inquiries and comments received at the Bank.

The Bank proceeded with efforts to revise and rebase its statistics so as to accommodate changes in the economic and regulatory environment, as well as implementing measures to improve their user-friendliness. It also continued to contribute to discussions held by the government toward the improvement of economic statistics.

As the secretariat of the CCFSI, and in light of changes in the environment surrounding the provision of financial information to the public, the Bank supported the CCFSI's efforts to develop a range of financial information-related activities, thereby contributing to the promotion of financial literacy among the public.

Based on the above, the Bank considers that, in fiscal 2017, it steadily implemented the measures scheduled under its strategic objective of strengthening external communication. In fiscal 2018, the Bank will continue its efforts to improve the clarity and intelligibility of communications regarding its conduct of monetary policy and business operations as well as to maintain and strengthen networks with people, firms, and economic organizations across a wide range of fields so as to better grasp public opinion and public needs.

Notes:

1. 4 See II. Review of Economic and Financial Developments and Monetary Policy Meetings under The Bank's Review of Fiscal 2017, for excerpts from the summaries of the two issues of the report dealing with developments in fiscal 2017, namely, the issues released in December 2017 and June 2018.

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The Bank's Organizational Management in Fiscal 2017

I. Statement of Accounts and Budget for Expenses

As for the Bank of Japan's expenses for fiscal 2017, the Bank duly made, in line with the budget, the disbursements necessary to cover "The Bank of Japan's Strategic Priorities for Fiscal 2014-2018" (the 2014-18 Strategic Priorities). With regard to the Bank's statement of accounts for fiscal 2017, the total amount of actual expenses increased from the previous fiscal year by 2.5 percent (4.8 billion yen) to 192.9 billion yen. Regarding the Bank's budget for expenses for fiscal 2018, the Bank carefully examined overall expenditure in compiling a suitable budget for the year while securing the necessary budget to perform its role as the country's central bank.

II. IT Investment

The Bank steadily carried out the system development projects necessary to achieve the goals set out in the 2014-18 Strategic Priorities, while working to raise the efficiency and streamline the development of such projects. The scale of system development for fiscal 2017 was 13,254 person-months¹ (including 10,266 person-months that were outsourced).

Notes:

1. 1In system development, one person-month is the workload equivalent of one person working for one month.

III. Human Resources

The Bank maintained the number of employees necessary to achieve the goals set out in the 2014-18 Strategic Priorities without breaking the ceiling on the number of full-time employees for fiscal 2017, which was set at 4,900. Following the Bank's efforts to secure the staff needed to enhance its capabilities while further increasing the overall efficiency of its business operations, the number of full-time employees stood at 4,653 at the end of March 2018, up 7 from the previous fiscal year (Table 1).

Regarding remuneration, the Bank raised the annual remuneration for its officers -- through increasing their bonuses -- in fiscal 2017 by 0.4 percent from the previous fiscal year.

Also, in consideration of such factors as the reductions in retirement allowances for national government officials, the Bank decided to reduce the retirement allowances of its officers by 3.5 percent.

As for its employees, the Bank raised the annual remuneration for fiscal 2017 by 0.2 percent from the previous fiscal year. For those in non-managerial positions, the Bank raised the base levels of salaries by 0.2 percent from the previous fiscal year and paid semiannual bonuses in May and November, each amounting to 2.108 months of salary, on a basis excluding the base salary increase. For those in managerial positions, the Bank paid 2.204 months of salary per semiannual bonus.

Note:

1. 1Full-time employees of the Computer Center and the Banknote Operations Center are included in the number of full-time employees at the Head Office.

IV. Organizational Management Measures

With a view to addressing the strategic objectives for its business operations stated in the 2014-18 Strategic Priorities, the Bank implemented organizational management measures for the appropriate conduct of business operations given changes in its environment, and also for the appropriate management of operational risks.

As for other organizational management measures, the Bank worked to strengthen business continuity arrangements as follows.

1. (1) Based on its experience following the Great East Japan Earthquake and the Kumamoto Earthquake, in addition to the government's reappraisal of potential damage scenarios for large-scale earthquakes directly under Tokyo or in the Nankai Trough, the Bank steadily implemented measures toward enhancing the disaster countermeasures in place at its Head Office and branches.
2. (2) The Bank further strengthened cooperation with relevant parties such as the national and local governments as well as financial institutions through, for example, participation in the Central Disaster Management Council and various exercises.

In addition, the Bank indicated in the 2014-18 Strategic Priorities that it would secure and foster human resources in the execution of business operations and organizational management, expand its recruitment of women and encourage their promotion, and seek to offer various working arrangements to improve the work-life balance of its employees. The Bank made progress in addressing these measures as follows.

1. (1) The Bank enhanced various staff education and training programs and continued to work to promote personnel exchanges with institutions both inside and outside Japan.
2. (2) The Bank, under an action plan compiled and released in March 2016 pursuant to the Act on Promotion of Women's Participation and Advancement in the Workplace, undertook initiatives to ensure that its female employees could fully realize their potential at work, thereby making it easier for all of its employees to participate in the workforce. Having taken these initiatives, in May 2017, the Bank was awarded the highest rating, Level 3, of the Eruboshi (L Star) certification from the Minister of Health, Labour and Welfare in recognition of the excellence of its performance in this regard. In addition, the Bank continued to work to improve the employment and working conditions of its employees based on the third phase of the action plans set out in "Measures to Support Raising Next-Generation Children," so that they can balance work and child-rearing. In March 2018, as the Bank had achieved the goals for the third phase one year ahead of the initial schedule, it formulated and released action plans for the fourth phase, to start from fiscal 2018.
3. (3) With regard to staff recruitment for fiscal 2018, the Bank proactively recruited women, with the aim that they should account for about 30 percent of future candidates for positions of Director, Chief Manager, and above.²
4. (4) With a view to making the most of the skills and know-how of experienced workers and ensuring the stable conduct of its business operations, the Bank continued to seek to embed firmly within the workplace culture the "expert staff system," a reemployment system that the Bank introduced in fiscal 2015.

Following an instance of misconduct in which an employee of the Bank stole commemorative coins held at the Bank's Head Office, the Bank took disciplinary actions against those involved. It also decided to redouble its efforts with regard to staff education and training so as to ensure integrity in the execution of duties by the Bank's staff.

Notes:

1. 2Employees in the positions of Director, Chief Manager, and above oversee the execution of business operations assigned to them, and are responsible for organizational management within their sections.

V. Internal Audits

The Internal Auditors' Office at the Bank conducts internal audits of the Bank's business operations at its Head Office, branches, local offices, and overseas representative offices in order to examine the appropriateness of its business operations and the adequacy of its operational risk management as well as the fairness with which its business operations are executed. The results of audits are reported to the Policy Board.

In fiscal 2017, the Internal Auditors' Office audited 4 departments at the Bank's Head Office (the Monetary Affairs Department, the International Department, the Operations Department, and the Information System Services Department), 3 overseas representative offices (London, Paris, and Frankfurt), 15 branches (Sapporo, Aomori, Akita, Fukushima, Maebashi, Yokohama, Niigata, Kyoto, Osaka, Kobe, Okayama, Takamatsu, Oita, Nagasaki, and Kumamoto), and 3 local offices (Mito, Asahikawa, and Tokushima).

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The Bank's Accounts: Financial Statements and Other Documents for Fiscal 2017

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Appendixes

Appendix 1: Overview of Audits of the Bank of Japan

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Appendix 2: The Bank of Japan's Strategic Priorities for Fiscal 2014-2018¹

I. Introduction

"The Bank of Japan's Strategic Priorities for Fiscal 2014-2018" describes the basic principles for the Bank's business operations and organizational management during the five-year period.

From fiscal 2009, the Bank formulated the Strategic Priorities within a framework covering a three-year period and updated them every fiscal year. The Bank has decided to adopt a new five-year framework for the Strategic Priorities for fiscal 2014-2018, the content of which will be kept basically unchanged for the whole period, with a view to (1) clarifying the Bank's objectives to be achieved over the medium term and (2) evaluating its performance properly.

The Bank plans to conduct an interim review during the five-year period in order to address any changes in its environment. It will revise the content flexibly in response to any significant changes in its environment.

II. The Bank's Organizational Principles

The Bank has decided and made public its organizational principles, which constitute a set of fundamental values to be respected by the Bank, as the central bank of Japan. The officers and employees of the Bank are to keep these principles in mind at all times in the conduct of business operations. The Bank will maintain public confidence through the appropriate conduct of its policies and business operations in accordance with the organizational principles listed below.

Public Interest

The Bank shall promote the public interest by fulfilling the core purposes stipulated in the Bank of Japan Act.²

Transparency

The Bank shall demonstrate proper accountability in its policies and business operations via its various external networks.

Excellence

The Bank shall pursue excellence in central banking services, responding sufficiently to changes in its environment.

Integrity

The Bank shall ensure integrity in execution of duties by each and every officer and employee, requiring that they uphold high standards of morality.

Effectiveness and Efficiency

The Bank shall make effective and efficient use of management resources in its conduct of business operations and organizational management.

III. Background and Management Guidelines

There is a growing need for central banks to address issues arising from (1) further globalization of the financial and economic environment, (2) diversification and the increasing complexity of financial instruments and transactions, and (3) continuing advances in financial engineering and information processing technology.

In this situation, the Bank is required to respond flexibly to any changes in its environment to properly perform its role as the central bank. This involves (1) dealing proactively with new issues and (2) conducting business operations stably while managing operational risks properly. In order to ensure public confidence, it is also important for the Bank to explain clearly to the public its policies and business operations.

Based on the above understanding, the following three management guidelines have been set out in the Strategic Priorities for fiscal 2014-2018.

A. Engage in Bank-Wide Efforts to Fulfill Its Missions

The Bank's missions are to achieve price stability and ensure the stability of the financial system. To achieve price stability, the Bank has set the "price stability target" at 2 percent in terms of the year-on-year rate of change in the consumer price index (CPI). It will engage in Bank-wide efforts to steadily fulfill these missions, with its officers and employees sharing the understanding that doing so promotes the public interest. To this end, they shall at all times (1) work to make the fullest possible use of a high degree of central banking expertise and (2) remain aware of the importance of a creative attitude to handle new issues proactively.

B. Improve Capability in the Conduct of Business Operations

The Bank's missions are fulfilled through the conduct of a wide range of central banking operations, and the public expects the Bank to conduct these operations stably. Recently, there is a growing need for central banks to address issues reflecting changes in the domestic and overseas environments. The Bank will therefore improve its capability in the conduct of business operations, by making use of job-specific expertise that has been cultivated over the years and by managing its operational risks properly. In addition, it will establish an operational framework that responds properly to changes in these environments.

C. Enhance External Communication and Strengthen Networks

In maintaining public confidence, it is important for the Bank, taking a global perspective, to explain clearly to the public its policies and business operations and to listen carefully to outside opinion. Such multilateral and multilevel communication will contribute to the Bank's fulfillment of its missions and will promote the public interest. Recognizing this, the Bank will further enhance its communication by building appropriate networks with people and organizations across a wide range of fields both inside and outside Japan.

IV. Strategic Objectives for Business Operations

In accordance with (1) the organizational principles, which constitute a set of fundamental values subscribed to by the Bank, and (2) the management guidelines, which provide direction for the Strategic Priorities, the Bank will focus on the following strategic objectives for its business operations.

A. Plan and Formulate Monetary Policy Measures That Facilitate Policy Conduct

In the course of Japan's economy overcoming deflation and achieving a sustainable growth path with price stability, a number of changes in financial and economic conditions are expected to take place.

With a view to responding sufficiently to such changes and providing a firm underpinning for monetary policy conduct, the Bank will carry out the requisite research and analysis on financial and economic conditions at home and abroad from multiple perspectives.

Based on such multi-perspective analysis of the effects and impacts of monetary policy, the Bank will plan and formulate monetary policy measures flexibly. In addition, the Bank will work to have the necessary operational arrangements in place so that money market operations are conducted properly, in line with monetary policy conduct.

B. Ensure Stability and Improve the Functioning of the Financial System

It is essential to ensure stability and improve the functioning of the financial system in order to provide support from the financial side for Japan's economy to strengthen its growth potential.

In this regard, the Bank will appropriately plan and execute the selection of financial institutions holding current accounts at the Bank (BOJ account holders) as well as business operations relating to the provision of loans.

The Bank will also thoroughly assess the business operations, risk management, profitability, and capital bases of individual financial institutions through on-site examinations and off-site monitoring, making use of analysis of expected future developments in these areas. In particular, with a view to dealing with systemic risks more effectively, the Bank will work to ensure a firm grasp of business conditions at systemically important financial institutions. It will identify and share issues of managerial concern with financial institutions, thereby encouraging an appropriate response.

In planning and formulating its financial system policy measures, the Bank will place greater importance than ever on taking a macroprudential perspective. As a prerequisite for this, it will enhance its research and analysis on the stability and functioning of the financial system as a whole.

Meanwhile, in order to ensure financial system stability, the Bank will stand ready to act effectively as lender of last resort for individual financial institutions and financial markets when necessary.

The Bank will address these objectives in due cooperation with relevant parties.

C. Enhance Payment and Settlement Services and Reinforce Market Infrastructure

The Bank will implement the second phase of the new Bank of Japan Financial Network System (BOJ-NET) project scheduled for fiscal 2015 and thereafter operate the system smoothly and reliably.

While making effective use of the improved functionality of the new BOJ-NET, the Bank will enhance Japan's payment and settlement services in response to the diversification of payment and settlement needs and financial globalization. Specifically, the Bank will encourage the enhancement of retail payment systems and work to realize payment and settlement using the new BOJ-NET for cross-border transactions in yen or Japanese government bonds (JGBs). In addition, the Bank will conduct appropriate oversight of financial market infrastructures, while considering changes in financial market environments.

The Bank will also work actively to reinforce the financial market infrastructure in Japan to reduce settlement risk and strengthen market functioning, while giving due consideration to international developments and working in close cooperation with market participants.

D. Conduct Stable and Efficient Central Banking Operations

With regard to business operations relating to banknote issuance, the Bank will work to secure confidence in banknotes and coins using new technology. It will strengthen the monitoring of the cleanliness of banknotes in circulation and proceed with the introduction of next-generation automatic banknote examination machines.

The Bank will also work to maintain a firm grasp of changes in the delivery routes of cash and will establish more efficient operational frameworks based on the information gathered.

With regard to banking operations, the Bank will, on a daily basis, continue to settle financial transactions using BOJ accounts and conduct money market operations in an accurate and stable manner. As for treasury funds and Japanese government securities (JGSs), the Bank will carry out its range of services with precision.

The Bank will reassess the efficiency of its operational frameworks in view of changing trends in workloads associated with banking operations as well as services relating to treasury funds and JGSs.

E. Contribute to the Response to Globalization on the International Financial Front

Amid further globalization and growth in business and financial transactions between Japanese institutions and counterparties located in Asia, financial and economic stability around the globe, particularly in Asia, has become crucial to Japan's economy.

Based on this recognition, the Bank will play its due part as a central bank in ensuring the stability of the international currency system, in cooperation with overseas authorities. It will also play a leading role at international meetings, including those organized by the Bank for International Settlements (BIS) and the Executives' Meeting of East Asia-Pacific Central Banks (EMEAP), in keeping with Japan's position. Furthermore, to ensure financial and economic stability in Asia, the Bank will expand and enhance its technical assistance in the region.

F. Contribute to the Regional Economic and Financial Environment

The Bank will contribute to the regional economic and financial environment by providing appropriate central banking services in each region of the country, making due use of the functions available at its Head Office, branches, and local offices.

In this regard, the Bank will aim to ensure that it can conduct its business operations in a stable manner even in times of disaster. It will maintain an accurate grasp of regional financial and economic conditions through close and frequent communication with local financial institutions, firms, and economic organizations. At the same time, the Bank will provide a clear and accessible explanation of (1) its view of economic and financial conditions both at home and abroad as well as (2) the thinking behind its policies and business operations. It will make active use of information gained through such efforts in conducting monetary policy and business operations.

G. Strengthen External Communication

With a view to ensuring broad public confidence, the Bank will communicate its conduct of monetary policy and business operations to not only financial professionals but also the public in a clear and intelligible manner. To this end, the Bank will enhance (1) the effectiveness of its communication by making full use of information technology, for example through improvements to its website, and (2) the in-house tours of its Head Office and branches.

Moreover, with the aim of better grasping public opinion as well as public needs regarding its policies and business operations, the Bank will further strengthen its communication with financial institutions closely involved in its conduct of policies and business operations and will build and strengthen networks with people, firms, and economic organizations across a wide range of fields.

Meanwhile, the Bank will publish the findings from its research and analysis in effective ways. It will also appropriately compile and release statistics with a view to improving their user-friendliness and responding to global structural changes.

In addition to the above efforts, the Bank, in cooperation with relevant parties, will work to support the activities of the Central Council for Financial Services Information (CCFSI) and associated committees to promote financial literacy among the public.

V. Strategic Objectives for Organizational Management

A. Organizational Management

In accordance with the organizational principles and the management guidelines described above, the Bank will focus on the following strategic objectives for its organizational management and all sections of its Head Office, branches, and local offices will coordinate their efforts to achieve them.

1. Ensure the appropriate conduct of business operations given changes in the Bank's environment

The Bank will enhance its capability in planning business operations, responding appropriately to changes in its environment where the need for central banks to address certain issues is growing. It will promote the passing on of know-how among employees with a view to firmly maintaining the levels of job-specific expertise that have underpinned its business operations over the years. In addition, it will work actively to revise its business processes in response to changes in its environment.

Moreover, the Bank will promote efficiency and stability in its business operations through computerization, and will also review its business processes to reflect technological advances.

2. Manage operational risks appropriately

In order to maintain public confidence, it is important for the Bank to continue to conduct all business operations with precision and deliberation. To this end, it will engage in Bank-wide efforts to manage operational risks effectively, giving due consideration to a change in the composition of its workforce following the anticipated retirement of a large number of experienced workers.

With regard to due execution of duties by its officers and employees, the Bank will continue to work to promote compliance with social norms as well as the appropriate management of information security.

3. Strengthen business continuity arrangements

Based on its experience following the Great East Japan Earthquake and the government's reappraisal of potential damage for large-scale earthquakes such as those directly under Tokyo or in the Nankai Trough, the Bank will reinforce its business continuity arrangements through the effective use of its management resources.

B. Management Resources

1. Human resources

In order to steadily carry out the strategic objectives outlined in the Strategic Priorities for fiscal 2014-2018, the Bank will work to secure the necessary employee numbers and to increase the efficiency of its overall business operations. To this end, for each fiscal year, it will decide and make public the ceiling on the number of full-time employees.

In addition, the Bank will secure and foster human resources with a high degree of central banking expertise in the execution of business operations and organizational management. In particular, it will encourage its employees to cultivate the practical skills to build and manage relationships both inside and outside Japan, the creative mind-set to deal proactively with new issues, and the ability to play an active role internationally. From this perspective, the Bank will continue to work to promote personnel exchanges with institutions both inside and outside Japan.

Furthermore, the Bank will expand its recruitment of women and encourage their promotion; it will also seek to offer various working arrangements to improve the work-life balance of its employees. In addition, it will continue to work to facilitate internal communication.

2. Budget for expenses

In order to steadily carry out the strategic objectives outlined in the Strategic Priorities for fiscal 2014-2018, the Bank will secure the necessary budget and achieve more streamlined overall spending. To this end, for each fiscal year, it will decide and make public the budget for expenses.

VI. Performance Reviews

With a view to (1) steadily carrying out the strategic objectives for business operations and organizational management outlined in the Strategic Priorities for fiscal 2014-2018 and (2) reviewing and revising as necessary the allocation of management resources, the Bank will conduct and make public performance reviews of measures taken under the Strategic Priorities every fiscal year. In addition, it will conduct a thorough review of the entire contents of the Strategic Priorities.

Notes:

1. 1Decided by the Policy Board on March 25, 2014.
2. 2The Bank of Japan Act determines the Bank's core purposes as follows: Article 1 stipulates that the Bank is required to issue banknotes, carry out currency and monetary control, and maintain the stability of the financial system; and Article 2 stipulates that currency and monetary control shall be aimed at achieving price stability, thereby contributing to the sound development of the national economy.

Attachment 1 for Appendix 2: The Bank of Japan's Budget for Expenses for Fiscal 2018

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Attachment 2 for Appendix 2: The Ceiling on the Number of Full-Time Employees of the Bank of Japan for Fiscal 2018

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Information

I. Bank of Japan Website

Provides various kinds of information, including monetary policy releases, speeches and statements, reports and research papers, financial and economic statistics, as well as general information about the Bank.

Bank of Japan FAQs

Provides helpful answers to frequently asked questions on the Bank's functions and business operations as well as related topics. Continually updated to reflect changes.

Virtual Tour

Introduces the Bank's history and operations, allowing viewers to take a virtual stroll around its Old and New Buildings.

Introductory Video "The Bank of Japan in Our Daily Lives"

Explains the importance of maintaining people's confidence in the currency, as well as the Bank's policies and operations toward this end.

PR Brochure "Bank of Japan: Its Functions and Organization"

Provides a concise and easy-to-follow overview of the Bank's functions and operations, as well as of its history and organizational structure.

BOJ Time-Series Data Search

Provides time-series statistical data released by the Bank which are available for viewing, searching, downloading, and drawing graphs.

II. Visiting the Bank of Japan

• Bank of Japan (Head Office)

  2-1-1 Nihonbashi-Hongokucho,
  Chuo-ku, Tokyo 103-0021, Japan
  Tel: +81-3-3279-1111

  A guide map for the Head Office is available on the "Location / Visiting the Bank" page on the Bank's website.

• Photo of the Bank of Japan (Head Office)

• Bank of Japan Currency Museum

  1-3-1 Nihonbashi-Hongokucho,
  Chuo-ku, Tokyo 103-0021, Japan
  Tel: +81-3-3277-3037

  The Museum looks to provide visitors with an opportunity to think about the history and role of currency and its relation to culture and society through viewing the Museum's collection of coins and notes, as well as related materials and research.

• Image of the Currency Museum's website

• Bank of Japan Otaru Museum

  1-11-16 Ironai, Otaru, Hokkaido 047-0031, Japan

  The Bank of Japan Otaru Museum opened in May 2003, making use of the former Otaru Branch building. It provides displays on the Bank's history, operations, and the development of Otaru City.

• Photo of Bank of Japan Otaru Museum

III. Publications and Reports

About the Bank

About Monetary Policy

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