Annual Review 2019

• Contents
• Request for Comments
• Notice

August 30, 2019
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 84KB]
• About the Bank of Japan [PDF 899KB]
  • I. Core Purposes
  • II. Capital
  • III. The Bank's Officers
  • IV. Organization
• The Bank's Business Operations [PDF 222KB]
  • 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 2018 [PDF 268KB]
  • 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 2018 [PDF 246KB]
  • 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 2018* [PDF 1,725KB]
  • I. Assets and Liabilities, Profits and Losses, and Capital Adequacy Ratio
  • II. Financial Statements
  • III. Schedule for the Financial Statements
  • IV. Expenses
• Appendixes [PDF 1,094KB]
  • Appendix 1: Overview of Audits of the Bank of Japan*
  • Appendix 2: The Bank of Japan's Strategic Priorities for Fiscal 2014-2018
  • Appendix 3: Performance Review of The Bank of Japan's Strategic Priorities for Fiscal 2014-2018
  • Appendix 4: Medium-Term Strategic Plan (Fiscal 2019-2023)
    • Attachment 1 for Appendix 4: The Bank of Japan's Budget for Expenses for Fiscal 2019*
    • Attachment 2 for Appendix 4: The Ceiling on the Number of Full-Time Employees of the Bank of Japan for Fiscal 2019*
• Information [PDF 1,549KB]
  • I. Bank of Japan Website
  • II. Visiting the Bank of Japan
  • III. Publications and Reports

Foreword by the Governor

Note:

• 1.Following The Bank of Japan's Strategic Priorities for Fiscal 2014-2018 that ended in March 2019, the Bank formulated this plan for the five-year period starting April 2019.

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) 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) 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 2019, 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.Article 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.Stipulated by Article 60, paragraph 2, and Supplementary Provisions Article 22, paragraph 2.
• 3.Stipulated by Article 53, paragraph 4.

Note:

• 1.Rounded down to the nearest 1,000 yen. As of the end of March 2019.

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:

• 4.Stipulated 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.
• 5.Stipulated by Article 16, paragraph 2.
• 6.Stipulated by Article 23.
• 7.Stipulated by Article 24.
• 8.Stipulated by Article 25.
• 9.Duties 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.Members are as of August 1, 2019.
• 2.The texts of speeches by Policy Board members are available on the Bank's website (https://www.boj.or.jp/en/announcements/press/koen_speaker/index.htm).

Notes:

• 3.Established in 2004 through merger of Credit Agricole Indosuez and Credit Lyonnais.

Notes:

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

Notes:

• 6.Established in 2002 through merger of Sanwa Research Institute and Tokai Research & Consulting Inc.
• 7.Established 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 Eiji Maeda, Kimihiro Etoh, Nobuyasu Yoshioka, Shinichi Uchida, Yasuhiro Yamada, and Yuichi Ikeda. The 3 Auditors are Ryuichi Shogan, Toshihiko Fujita, and Ryota Yanagihara. The 10 Counsellors are Tsutomu Okuda, Akio Mimura, Masahiro Kawai, Hiroaki Nakanishi, Ado Yamamoto, Masayoshi Matsumoto, Shigeharu Suzuki, Yoshimitsu Kobayashi, Makoto Takashima, and Masami Iijima. 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.As of August 1, 2019.
• 2.As 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.Local 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 committee comprises 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 committee comprises 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, and 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.

---

• Back to CONTENTS

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 2018.

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 2018.²

Notes:

• 1.Papers and statistics as well as lists of the Bank's publications in English are available on the Bank's website (https://www.boj.or.jp/en/index.htm) and on the IMES website (https://www.imes.boj.or.jp/en/index.html); click here for a list of the Bank's major publications and reports.
• 2.The summaries of these two issues in English are available on the Bank's website; click here for excerpts from these summaries. The full texts are available in Japanese on the website (https://www.boj.or.jp).

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 raise the sophistication of their business and risk management as well as business operations.

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.Figures in parentheses indicate the number of institutions as of the end of fiscal 2017.

Notes:

• 1.Established and licensed under Japanese legislation, excluding the Bank and government-related organizations.
• 2.Including 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. Specifically, it exchanges views with market participants, supports the formulation of additional rules on and revisions of market practices, and compiles and releases 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 (G20), the Group of Seven (G7), 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 in support of efforts to ensure economic and financial stability in Asia; 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.

---

• Back to CONTENTS

The Bank's Review of Fiscal 2018

I. Introduction

In March 2014, the Bank of Japan formulated and released The Bank of Japan's Strategic Priorities for Fiscal 2014-2018 (Strategic Priorities) (Appendix 2). In this document, the Bank adopted a five-year framework, the content of which would 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 conducted and made 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 2018, 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 2018 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 2018."

The Strategic Priorities stated that a comprehensive review of its entire content would be conducted separately. With the five-year period ending in March 2019, the Bank conducted a comprehensive review of its performance over the entire period and summarized its accomplishments during the period with regard to the strategic objectives for business operations and organizational management stated in the Strategic Priorities (Appendix 3).

In the same month, the Bank formulated and released the Medium-Term Strategic Plan (Fiscal 2019-2023) (Plan), the content of which will also remain, in principle, fixed during the five-year period (Appendix 4). The Bank will conduct an interim review of the Plan in or around fiscal 2021, in order to enable the Bank to address any changes in the environment. It will flexibly revise the Plan as appropriate in response to any significant changes. The Bank will make public performance reviews of measures taken under the Plan every fiscal year in the Gyoumu Gaikyo Sho (Outline of Business Operations).

II. Review of Economic and Financial Developments and Monetary Policy Meetings¹

A. First Half of Fiscal 2018 (April-September 2018)

1. Economic developments

a. Looking back at the first half of fiscal 2018, Japan's economy was expanding moderately, with a virtuous cycle from income to spending operating.

Exports followed an increasing trend on the back of overseas economies having continued to grow firmly on the whole. Turning to domestic demand, housing investment was more or less flat; public investment also was more or less flat, remaining at a relatively high level. On the other hand, business fixed investment continued on an increasing trend, with corporate profits following their improving trend and business sentiment staying at a favorable level. 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.

b. On the price front, the year-on-year rate of change in the consumer price index (CPI, all items less fresh food) was around 1 percent at the end of the first half of fiscal 2018. Inflation expectations were more or less unchanged.

2. Financial developments

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, although it temporarily fluctuated somewhat around the time of the July MPM.

The Nikkei 225 Stock Average rose to the range of 22,500-23,000 yen in mid-May, mainly reflecting the yen's depreciation against the U.S. dollar. It then temporarily declined somewhat, due in part to uncertainties over protectionist trade policies and concerns regarding political developments in Europe, but rose since mid-September, partly reflecting the yen's depreciation against the dollar amid such uncertainties dissipating somewhat, and was in the range of 24,000-25,000 yen at end-September.

In the foreign exchange market, the yen depreciated against the U.S. dollar through mid-May amid a rise in U.S. interest rates. Thereafter, it temporarily appreciated against the dollar, due in part to uncertainties over protectionist trade policies and concerns regarding political developments in Europe; however, at end-September, the yen depreciated as such uncertainties dissipated somewhat and was in the range of 113-114 yen to the dollar. The yen was more or less flat against the euro, with fluctuations smoothed out.

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 at around 2 percent. The year-on-year rates of change in the amounts outstanding of CP and corporate bonds were positive at relatively high levels.

c. The monetary base (currency in circulation plus current account balances at the Bank) continued to increase at a year-on-year growth rate of around 6-8 percent. The year-on-year rate of increase in the money stock (M2) was at around 3 percent.

3. MPMs²

a. Four MPMs were held in the first half of fiscal 2018.

At all the MPMs held in the first half of fiscal 2018, 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 the MPMs held in April and June, 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) 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) Guidelines for asset purchases

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

At the July MPM, with a view to persistently continuing with powerful monetary easing, the Policy Board decided to strengthen its commitment to achieving the price stability target by introducing forward guidance for policy rates, and to enhance the sustainability of QQE with Yield Curve Control, as follows.

(1) Forward guidance for policy rates

The Bank intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time, taking into account uncertainties regarding economic activity and prices including the effects of the consumption tax hike scheduled to take place in October 2019.

(2) 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. While doing so, the yields may move upward and downward to some extent mainly depending on developments in economic activity and prices. With regard to the amount of JGBs to be purchased, the Bank will conduct purchases in a flexible manner so that their amount outstanding will increase at an annual pace of about 80 trillion yen.

(3) Guidelines for asset purchases

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

In addition, at the July MPM, the Policy Board decided to make the following adjustments in accordance with the measures described above.

(1) Change in the size of the Policy-Rate Balance

The Bank, under the condition that yield curve control can be conducted appropriately, will reduce the size of the Policy-Rate Balance in financial institutions' current account balances at the Bank -- to which a negative interest rate is applied -- from the current level of about 10 trillion yen on average. This Balance is calculated assuming that arbitrage transactions take place in full among financial institutions.

(2) Change in the amount of each ETF to be purchased

The Bank will revise the purchase amount of each ETF and increase that of ETFs which track the Tokyo Stock Price Index (TOPIX).

At the September MPM, the Policy Board decided to continue with the guidelines for market operations and asset purchases determined at the July MPM.

With regard to the future conduct of monetary policy, the Policy Board confirmed the following at the MPMs held in April and June: "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."

In addition, the Policy Board confirmed the following at the MPMs held in July and September: "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. As for policy rates, the Bank intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time, taking into account uncertainties regarding economic activity and prices including the effects of the consumption tax hike scheduled to take place in October 2019. It will examine the risks considered most relevant to the conduct of monetary policy and 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 2018 (October 2018-March 2019)

1. Economic developments

a. Looking back at the second half of fiscal 2018, Japan's economy was expanding moderately, with a virtuous cycle from income to spending operating, although exports and production were affected by the slowdown in overseas economies.

Exports and industrial production had followed an increasing trend but then showed some weakness through the end of the second half of the fiscal year. On the other hand, corporate profits and business sentiment stayed at favorable levels on the whole, albeit with some weakness observed in part, and business fixed investment continued on an increasing trend. Private consumption increased moderately, albeit with fluctuations, against the background of steady improvement in the employment and income situation. Housing investment was more or less flat; public investment also was more or less flat, remaining at a relatively high level.

b. On the price front, the year-on-year rate of change in the CPI (all items less fresh food) was in the range of 0.5-1.0 percent. Inflation expectations were more or less unchanged.

2. Financial developments

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 followed a downtrend, reflecting a decline in U.S. stock prices, uncertainties over the trade friction between the United States and China, and the yen's appreciation, and fell to the range of 19,000-19,500 yen in late December. It then rose along with a rise in U.S. stock prices, albeit with fluctuations, and was in the range of 21,000-22,000 yen at end-March.

In the foreign exchange market, the yen was more or less flat against the U.S. dollar, at the 113 yen level through mid-December. It thereafter appreciated amid a decline in U.S. interest rates, and was in the range of 110-111 yen at end-March. The yen appreciated against the euro, mainly due to uncertainties over negotiations on the United Kingdom's exit from the European Union (EU).

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

Firms' credit demand increased, mainly for funds for business fixed investment, as well as those related to mergers and acquisitions of firms. 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 2.0-2.5 percent. The year-on-year rates of increase in the amounts outstanding of CP and corporate bonds accelerated, being at relatively high levels.

c. The monetary base continued to increase at a year-on-year growth rate of around 4-6 percent. The year-on-year rate of increase in the M2 was in the range of 2-3 percent.

3. MPMs²

a. Four MPMs were held in the second half of fiscal 2018.

At the MPMs held in October through January, the Policy Board judged that Japan's economy was expanding moderately, with a virtuous cycle from income to spending operating, and at the MPM held in March, it judged that the economy was expanding moderately, with a virtuous cycle from income to spending operating, although exports and production were affected by the slowdown in overseas economies.

b. In the conduct of monetary policy, at all the MPMs held in the second half of fiscal 2018, the Policy Board decided to continue with the following guidelines for market operations and asset purchases under QQE with Yield Curve Control.

(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. While doing so, the yields may move upward and downward to some extent mainly depending on developments in economic activity and prices. With regard to the amount of JGBs to be purchased, the Bank will conduct purchases in a flexible manner so that their amount outstanding will increase at an annual pace of about 80 trillion yen.

(2) Guidelines for asset purchases

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

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 2018: "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. As for policy rates, the Bank intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time, taking into account uncertainties regarding economic activity and prices including the effects of the consumption tax hike scheduled to take place in October 2019. It will examine the risks considered most relevant to the conduct of monetary policy and 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.The 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 2018 and June 2019. The full texts of both issues in Japanese and summaries in English are available on the Bank's website.
• 2.Information related to MPMs is available on the Bank's website (https://www.boj.or.jp/en/mopo/mpmsche_minu/index.htm).

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) With a view to contributing to monetary policy conduct, the Bank conducted research and analysis from multiple perspectives regarding economic and financial conditions 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 and prices; and the effects of the scheduled consumption tax hike and of U.S.-China trade policy. With regard to the series of analyses conducted in order to examine wage and price developments, the results were released in the "Analysis on Wages and Prices" in the July 2018 Outlook for Economic Activity and Prices (hereafter the Outlook Report).

(2) The Bank conducted multi-perspective analysis on the efficacy 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 light of its analysis, the Bank planned and formulated the following monetary policy measures flexibly.

(3) The Bank enhanced dialogue with market participants by, for example, actively exchanging opinions on such occasions as the "Meeting on Market Operations" and the "Bond Market Group," each held twice in fiscal 2018.

(4) Progress was made in fundamental research on the following: monetary policy; the macroeconomy; financial markets; legal and accounting systems, as well as 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 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 at home and abroad; it also carried out multi-perspective analysis on the efficacy 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 2018, it achieved its intended objectives in implementing measures and provided a firm underpinning for monetary policy conduct. In fiscal 2019, under the Medium-Term Strategic Plan, the Bank will continue to work to have the necessary arrangements in place to conduct research and analysis that appropriately reflect various changes in economic and financial conditions, including the impact of advances in IT, 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) In line with the "On-Site Examination Policy for Fiscal 2018," 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 examined, 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 91 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 business conditions in their financial group as a whole and the risk management of their overseas branches and subsidiaries.

(2) With regard to off-site monitoring of financial institutions, the Bank conducted in-depth research and analysis, particularly on their business operations, risk management, and profitability; the efficacy and impacts of QQE with Yield Curve Control; and their digitalization efforts. In addition, given the complexity of business management at systemically important financial institutions, the Bank worked to maintain a firm grasp of their business conditions, including management policies and frameworks at the overall group level, capital policy, global business strategies, and management of foreign currency liquidity. The Bank sharpened its focus on business conditions at regional financial institutions in a low interest rate environment, for instance, on the problem of reduced profitability due to structural factors such as the declines in population and firm numbers. It also encouraged such institutions' efforts to enhance their business management frameworks, for example, through hosting seminars on profit simulations and exchanging views with them.

(3) In the two issues of the 2018 Financial System Report, released in April and October, the Bank examined financial intermediation by Japanese financial institutions and current conditions in the financial system; it also conducted more in-depth analysis on, for example, the downward risks to Japan's economy caused by financial vulnerabilities, using analytical approaches such as "GDP-at-risk" (GaR). In addition, the Bank released two issues of the Financial System Report Annex Series in fiscal 2018, providing more detailed analysis of and insight into selected topics; it also actively communicated with financial institutions, analysts, the media, academics, and other relevant parties, mainly through holding seminars and giving presentations at various international meetings (there were 66 such occasions in total in fiscal 2018).

(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 2018 -- and sharing awareness of challenges and risks at all levels.

(5) The Bank continued its stable execution of business operations for the Loan Support Program.

(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 "Criteria for Parties Eligible to Hold Current Accounts with the Bank and That Have Access to the Bank's Lending."

(7) The Bank hosted large-scale seminars on topics such as initiatives taken and support offered by regional financial institutions toward projects aimed at fostering business opportunities in local areas, and on the streamlining of working arrangements at financial institutions. It also held, among other such events, a series of workshops on utilizing IT and artificial intelligence (AI) 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: it presented in the Financial System Report 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 2018, 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 light of financial institutions' risk profiles and structural changes in the financial system, and that its intended effects were thereby achieved. In fiscal 2019, under the Medium-Term Strategic Plan, the Bank will thoroughly assess business conditions at financial institutions and provide support as they make necessary improvements, while (1) considering the impacts of demographic changes and advances in digitalization and (2) paying due attention to structural issues affecting profits as well as to changes in risk profiles accompanying, for example, expansion of their global activities. The Bank will also facilitate and enhance its efforts on the macroprudential front.

C. Enhance Payment and Settlement Services and Reinforce Market Infrastructure

1. Progress in implementing specific measures

(1) Looking to enhance Japan's payment and settlement services using the Bank of Japan Financial Network System (BOJ-NET), the Bank, in consultation with financial institutions and relevant parties, implemented such initiatives as promoting the use of Global Access, which allows BOJ-NET participant financial institutions access to the BOJ-NET from terminals in their overseas offices.

(2) The Bank continued its deliberations and coordination of efforts with other central banks and relevant parties toward realizing payment and settlement for cross-border transactions in yen or JGBs by, for example, promoting preparation with the Hong Kong Monetary Authority toward implementation of a cross-border delivery-versus-payment (DVP) link between the BOJ-NET JGB Services and the Hong Kong Dollar Clearing House Automated Transfer System (HKD CHATS).

(3) The Bank worked toward the enhancement of Japan's retail payment systems through, for example, support for deliberations on (1) extending the operating hours of the Zengin Data Telecommunication System (Zengin System) in October 2018 as well as on (2) launching the Zengin EDI System (ZEDI) in December 2018.

(4) The Bank participated in various meetings held by the Financial Stability Board (FSB) regarding collection of trading data, for example, on repos. Through such initiatives as holding seven seminars for reporting institutions in fiscal 2018, the Bank made steady progress with preparations for data collection, which was started in January 2019 as scheduled.

(5) As for the T+1 JGB settlement cycle for outright transactions, which was implemented in May 2018, the Bank supported market participants' initiatives by, for example, disseminating necessary information through the Tokyo Money Market Survey.

(6) In light of the development of the FX Global Code, the Bank continued to encourage market participants in Japan to declare their commitment to adhere to the code.

(7) The Bank contributed to discussions with market participants on the reform of Japanese yen interest rate benchmarks, as follows.

(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 November 2018, 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) 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 2018 -- and a conference on FinTech in Asia co-hosted by the International Monetary Fund (IMF), the FSA, and the Bank in April 2018.

2. Evaluation of progress

The Bank made progress as scheduled in: (1) the implementation of initiatives toward the enhancement of payment and settlement services, for example through promoting the use of Global Access; and (2) deliberations and coordination of efforts with other central banks and relevant parties toward 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 encouraged market participants in Japan to declare their commitment to adhere to the FX Global Code and started the collection of trading data, for example, on repos. It also supported market participants' initiatives on shortening the JGB settlement cycle and the reform of Japanese yen interest rate benchmarks.

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 2018 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 2019, under the Medium-Term Strategic Plan, the Bank will work to promote preparation toward implementation of a cross-border DVP link, and to collect and communicate information as well as carry out research related to FinTech. In addition, it will continue working to implement measures that will contribute to the reinforcement of the infrastructures of financial and capital markets, including its support for market participants' initiatives on the reform of Japanese yen interest rate benchmarks.

D. Conduct Stable and Efficient Central Banking Operations

1. Progress in implementing specific measures

(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) 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) 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) 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) 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 also allowed its Osaka Branch to carry out the receipt and payment of coins at a coin delivery center, from April 2019. In fiscal 2017, however, there was an incident of theft by an employee of commemorative coins held at the Bank's Head Office; following this incident, the Bank implemented measures to prevent any recurrence of misconduct.

(6) The Bank carried out a wide range of treasury funds and Japanese government securities (JGS) services with precision. It also worked to streamline business operations by, for example, reducing the number of agents, and promoting further use of online payments of treasury funds through providing support to relevant parties. In addition, the Bank responded positively to the need for financial institutions to improve the efficiency of their business operations including receipts of treasury funds; for instance, it approved the introduction of agents specializing in treasury fund receipts via account transfers as well as the installation of automated teller machines (ATMs) capable of processing these transactions.

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. In fiscal 2017, however, there was an incident of theft of commemorative coins by an employee; following this incident, the Bank implemented measures to prevent any recurrence of misconduct.

The Bank carried out a wide range of treasury funds and JGS services with precision; it also worked to streamline business operations and promote further use of online payments of treasury funds.

Based on the above, the Bank considers that, in fiscal 2018, it generally conducted stable and efficient central banking operations, while reviewing its business processes in response to changes in its operational environment. In fiscal 2019, the Bank will continue to conduct stable and efficient central banking operations under the Medium-Term Strategic Plan. As for business operations relating to banknotes, the Bank will work to secure confidence in the use of banknotes and coins, including by making steady progress with preparations for the introduction of a new series of Bank of Japan notes and a new 500 yen coin, while working to embed firmly the aforementioned measures to prevent any recurrence of misconduct. With regard to treasury funds and JGS services, the Bank will continue to pursue such initiatives as streamlining business operations and promoting further use of online payments of treasury funds by, for example, responding positively to the need for financial institutions to improve the efficiency of their business operations.

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

1. Progress in implementing specific measures

(1) As the central bank of the chair country, the Bank, together with the Ministry of Finance, proceeded with preparations for the Group of Twenty (G20) meetings in Japan in 2019. The Bank successfully organized and co-hosted such meetings as the G20 Finance and Central Bank Deputies Meeting and the G20 Symposium titled "For a Better Future: Demographic Changes and Macroeconomic Challenges," both held in January 2019.

(2) The Bank, as the central bank of Japan, actively participated in meetings such as those organized by the Association of Southeast Asian Nations Plus Three (ASEAN Plus Three), the Bank for International Settlements (BIS), the Executives' Meeting of East Asia-Pacific Central Banks (EMEAP), the FSB, the Group of Seven (G7), the IMF, and the Organisation for Economic Co-operation and Development (OECD), thereby achieving the following.

(3) The Bank actively exchanged information with overseas authorities on business conditions at systemically important financial institutions, mainly through supervisory colleges.

(4) 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 opinions with major central banks and other relevant parties as well as active strengthening of relations with monetary authorities in Asia.

(5) With regard to international monetary cooperation, the Bank deliberated on and coordinated bilateral local currency swap arrangements to provide liquidity backstops that meet the local currency funding needs of Japanese financial institutions operating overseas. In October 2018, the Bank signed an agreement with the People's Bank of China, allowing for the exchange of renminbi and yen between the two central banks. 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.

(6) Under the framework of ASEAN Plus Three, the Bank, together with the Ministry of Finance, played a key role, for example, by taking the lead in discussions regarding currency swap exercises based on the Chiang Mai Initiative Multilateralization (CMIM).

(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 by providing technical assistance, holding seminars, and exchanging personnel, mainly with other central banks in Asia. Of these interactions, 56 involved staff being sent from other central banks (355 people), while 7 involved sending the Bank's staff to overseas counterparts.

2. Evaluation of progress

The Bank, as the central bank of Japan, together with the Ministry of Finance, successfully organized and co-hosted G20 meetings. It also 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. Through these initiatives, the Bank contributed to and played a leading role in discussions toward ensuring the stability of the international currency and financial system. It boosted bilateral monetary cooperation in the Asian region and provided technical assistance, most of which was provided within the 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 it made steady progress in fiscal 2018 in terms of measures taken to contribute, as the central bank of Japan, toward 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 2019, under the Medium-Term Strategic Plan, the Bank will work to successfully organize and co-host the G20 meetings to be held in Japan, as the central bank of the chair country, together with the Ministry of Finance. The Bank will also 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) 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 a stable manner overall, holding working-level meetings as needed with financial institutions that hold current accounts at the Bank as well as ministries and government agencies.

(2) The Bank provided requisite central banking services smoothly, even in the midst of the successive natural disasters that occurred in Japan during fiscal 2018. Meanwhile, 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: Kushiro, Sapporo, Hakodate, Sendai, Nagoya, Kyoto, Osaka, Kobe, Okayama, Hiroshima, Matsue, Shimonoseki, Matsuyama, Kochi, and Fukuoka.

(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 utilized its findings in conducting monetary policy as well as in ensuring stability and improving the functioning of the financial system.

(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. The Bank also released two issues of the annex series to the report in fiscal 2018, providing more detailed analysis of and insight into selected topics (available only in Japanese).

(5) In fiscal 2018, the Bank's Center for Advanced Financial Technology (CAFT) hosted the following seminars and workshops targeted mainly at regional financial institutions: six seminars on corporate governance reforms and other themes, as well as eight workshops on topics such as operational reforms, private finance initiatives (PFIs) and public-private partnerships (PPPs), agri-finance, and support for business succession of firms.

2. Evaluation of progress

The Bank, at its Head Office and branches, conducted central banking operations in a stable manner overall. 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 utilized 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 it made steady progress in fiscal 2018 in terms of initiatives taken to contribute 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 2019, under the Medium-Term Strategic Plan, the Bank will 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 conditions and of region-specific challenges as well as to disseminate its findings, with a view to supporting sustainable development.

G. Strengthen External Communication

1. Progress in implementing specific measures

(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.

(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.

(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.

(4) The Bank actively disseminated information on its conduct of monetary policy and business operations in English.

(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.

(6) The Bank operated the Currency Museum appropriately, including feature exhibitions; the number of visitors during fiscal 2018 totaled around 106,000. The Bank also operated the Bank of Japan Otaru Museum appropriately, through reorganizing the permanent exhibition, redesigning the website, and putting on events such as a feature exhibition; the number of visitors during fiscal 2018 totaled around 100,000.

(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 2,128 historical official documents were added to the Archives, and there were a total of 103 requests for access.

(8) The Bank made public the findings of its research and analysis on economic and financial developments, releasing 12 papers in the Bank of Japan Review Series, 17 in the Bank of Japan Working Paper Series, 27 in the Institute for Monetary and Economic Studies (IMES) Discussion Paper Series, 4 in the Bank of Japan Research Laboratory Series, and 7 research papers.

(9) In May 2018, the IMES hosted an international conference entitled "Central Banking in a Changing World" at the Bank's Head Office.

(10) The Bank revised, rebased, and made appropriate enhancements to its statistics so as to accommodate changes in the economic and regulatory environment.

(11) Through the following measures, the Bank promoted an in-depth understanding of its statistics.

(12) The Bank contributed to discussions held by the government toward the refinement of economic statistics, such as enhancing the accuracy of GDP statistics, by taking part in the Statistics Commission and deliberations on Japan's balance of payments statistics.

(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 in cooperation with relevant parties such as ministries, local public bodies, and financial and economic organizations. For example, the CCFSI compiled and released a core educational material for use in lectures and seminars aimed at boosting financial literacy among the wider public. It also continued to provide lectures to college students on financial literacy and to work toward publishing 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 a variety of channels to communicate its conduct of monetary policy and business operations to various audiences including the general public 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 dialogues 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 refinement 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 2018, it appropriately implemented the measures scheduled under its strategic objective of strengthening external communication. In fiscal 2019, under the Medium-Term Strategic Plan, the Bank will work to achieve multilateral and effective communication at home and abroad regarding its conduct of monetary policy and business operations by making use of various communication platforms, as well as to maintain and strengthen relationships with people, firms, and economic organizations across a wide range of fields so as to better grasp public opinion and public needs.

Notes:

• 3.Click here for excerpts from the summaries of the two issues of the report dealing with developments in fiscal 2018, namely, the issues released in December 2018 and June 2019.

---

• Back to CONTENTS

The Bank's Organizational Management in Fiscal 2018

I. Statement of Accounts and Budget for Expenses

As for the Bank of Japan's expenses for fiscal 2018, 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 2018, the total amount of actual expenses decreased from the previous fiscal year by 0.2 percent (0.4 billion yen) to 192.6 billion yen. Regarding the Bank's budget for expenses for fiscal 2019, 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 2018 was 13,403 person-months¹ (including 10,390 person-months that were outsourced).

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 2018, which was set at 4,900. Following the Bank's efforts to further increase the efficiency of its overall business operations while securing the necessary employee numbers, the number of full-time employees stood at 4,636 at the end of March 2019, down 17 from the previous fiscal year (Table 1).

Regarding remuneration, the Bank raised the annual remuneration for its officers -- through increasing their bonuses -- in fiscal 2018 by 0.1 percent from the previous fiscal year.

As for its employees, the Bank raised the annual remuneration for fiscal 2018 by 0.6 percent from the previous fiscal year. For those in non-managerial positions, the Bank raised the base levels of salaries by 0.3 percent from the previous fiscal year and paid semiannual bonuses in May and November, each amounting to 2.132 months of salary, on a basis excluding the base salary increase. For those in managerial positions, the Bank paid 2.253 months of salary per semiannual bonus.

Notes:

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

Note:

• 1.Full-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) Based on its experience following the Great East Japan Earthquake, the Kumamoto Earthquake, and a succession of other natural disasters, 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) The Bank further strengthened cooperation with relevant parties such as national and local governments as well as financial institutions through, for example, participating 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) The Bank enhanced various staff education and training programs and continued to work to promote personnel exchanges with institutions inside and outside Japan.

(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, and strived to cultivate a workplace environment conducive to the well-being of all of its employees. In addition, the Bank continued to work to further improve terms of employment and working conditions based on the fourth phase of the action plans set out in "Measures to Support Raising Next-Generation Children," so that its employees can balance work and childrearing. Having taken these initiatives, in August 2018, the Bank was awarded the most prestigious Platinum Kurumin certification from the Minister of Health, Labour and Welfare in recognition of the excellence of its performance in providing childrearing support to its employees.

(3) With regard to staff recruitment for fiscal 2019, 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 The proportion of women in these positions in 2018 reached the goal of 5 percent set forth in the action plan compiled and released pursuant to the Act on Promotion of Women's Participation and Advancement in the Workplace.

(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 incident of theft by an employee of commemorative coins held at the Bank's Head Office, which occurred in fiscal 2017, the Bank made efforts in educating and training its employees so as to ensure complete integrity in the execution of their duties.

Notes:

• 2.Employees 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 2018, the Internal Auditors' Office audited 5 departments at the Bank's Head Office (the Payment and Settlement Systems Department, the Financial Markets Department, the Research and Statistics Department, the Currency Issue Department, and the Personnel and Corporate Affairs Department), 2 overseas representative offices (Hong Kong and Beijing), 14 branches (Kushiro, Hakodate, Kanazawa, Kofu, Matsumoto, Shizuoka, Nagoya, Matsue, Matsuyama, Kochi, Kitakyushu, Fukuoka, Kagoshima, and Naha), and 7 local offices (Obihiro, Toyama, Fukui, Nagano, Tottori, Saga, and Miyazaki).

---

• Back to CONTENTS

The Bank's Accounts: Financial Statements and Other Documents for Fiscal 2018

This section is not included in the HTML version of the report.

---

• Back to CONTENTS

Appendixes

Appendix 1: Overview of Audits of the Bank of Japan

This section is not included in the HTML version of the report.

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.Decided by the Policy Board on March 25, 2014.
• 2.The 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.

Appendix 3: Performance Review of The Bank of Japan's Strategic Priorities for Fiscal 2014-2018¹

I. Introduction

The Bank formulated The Bank of Japan's Strategic Priorities for Fiscal 2014-2018 (Strategic Priorities) and released it in March 2014. Performance reviews of measures taken under the Strategic Priorities have been conducted every subsequent fiscal year and the results made public.

With the current five-year period ending in March 2019, the Bank conducted a comprehensive review of its performance over the entire period. This document summarizes the Bank's accomplishments during the period with regard to the strategic objectives for business operations and organizational management stated in the Strategic Priorities.

II. The Environment Surrounding Central Banks

During the period of fiscal 2014-2018, there were many cases in which certain political or economic events reverberated across borders, against the backdrop of continued economic and financial globalization. Progress was made in innovation and application of information technology (IT) such as digitalization, and this started to produce significant effects on economic and financial activities. In Japan, the economic and financial impact of structural social changes such as the declining and aging of the population increased in importance.

III. Performance Reviews of Strategic Objectives for the Bank's Business Operations and Organizational Management

In light of the changes in the external environment outlined above, the Bank addressed a wide range of strategic objectives across both business operations and organizational management. It pursued these objectives in accordance with the three management guidelines of the Strategic Priorities: (1) engage in Bank-wide efforts to fulfill its missions; (2) improve capability in the conduct of business operations; and (3) enhance external communication and strengthen networks. The Bank considers that, overall, it achieved the strategic objectives laid out in the Strategic Priorities. Performance reviews for each of the strategic objectives are as follows.

A. Business Operations

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

With a view to contributing to monetary policy conduct, the Bank carried out the requisite research and analysis on economic and financial conditions at home and abroad, assessing these from multiple perspectives including the outlook for and risk factors affecting economic and price developments. It also conducted multi-perspective analysis on the efficacy and impacts of Quantitative and Qualitative Monetary Easing (QQE). In light of its analysis, the Bank planned and formulated monetary policy measures flexibly. It enhanced dialogue with market participants and other relevant parties by increasing opportunities for the exchange of views. In addition, the Bank deliberated on and introduced, in an appropriate manner, the measures necessary to pursue monetary policy, while making steady adjustments to its operational arrangements for conducting market operations. Given these accomplishments, the Bank considers that it provided a firm underpinning for monetary policy conduct.

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

With a view to ensuring stability and improving the functioning of the financial system, the Bank appropriately executed business operations relating to the provision of loans and the selection of financial institutions holding current accounts at the Bank (BOJ account holders). It also assessed the conditions of business operations and management at individual financial institutions by carrying out on-site examinations and off-site monitoring effectively and efficiently, and encouraged institutions to make necessary improvements. In addition, the Bank enhanced its research and analysis on the stability and functioning of the financial system from a macroprudential perspective and made use of the findings in planning and formulating financial system policy measures. It also disseminated the findings through the Financial System Report. Meanwhile, in addition to strengthening cooperation with relevant parties, the Bank maintained and reinforced its operational arrangements so as to be able to act as the lender of last resort if necessary. Given these accomplishments, the Bank considers that it achieved its intended objectives in ensuring stability and improving the functioning of the financial system.

3. Enhance Payment and Settlement Services and Reinforce Market Infrastructure

The Bank smoothly implemented the second phase of the new Bank of Japan Financial Network System (BOJ-NET) project and operated the system with stability thereafter. With a view to enhancing Japan's payment and settlement services, it made steady progress on the initiatives to realize payment and settlement using the BOJ-NET for cross-border transactions in yen or Japanese government bonds. In addition, the Bank conducted appropriate oversight of financial market infrastructures. It also contributed to deliberations on the selection of Japanese yen interest rate benchmarks and the adoption of the global code of conduct for foreign exchange markets, giving due consideration to international developments and working in cooperation with market participants. Moreover, the Bank proceeded with its FinTech-related initiatives, particularly in light of IT advances, by carrying out relevant research, for example. Given these accomplishments, the Bank considers that it achieved its intended objectives in enhancing payment and settlement services and reinforcing market infrastructure.

4. Conduct Stable and Efficient Central Banking Operations

With regard to business operations relating to banknotes, the Bank made progress in securing confidence in banknotes and coins through measures such as the introduction of new-generation automatic banknote examination machines. It also worked to maintain a firm grasp of changes in the delivery routes of cash and proceeded with improving the efficiency of operational frameworks. As for business operations relating to coins, however, there was an incident of theft by an employee of commemorative coins held at the Bank; following this incident, the Bank implemented measures to prevent any recurrence of misconduct. With regard to banking operations, the Bank, on a daily basis, settled financial transactions using BOJ accounts and conducted market operations, implementing all of these in an accurate and stable manner. As for treasury funds and Japanese government securities, it carried out a wide range of services with precision. By cooperating with relevant parties, the Bank also worked to streamline business operations by, for example, reducing the number of agents, as well as promote further use of online processing of treasury funds. In light of the above, the Bank considers that it generally conducted stable and efficient central banking operations.

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

In cooperation with relevant authorities at home and abroad, the Bank played its due part as the central bank of Japan in ensuring the stability of the international currency system at meetings such as those organized by the Bank for International Settlements (BIS), the Executives' Meeting of East Asia-Pacific Central Banks (EMEAP), the Financial Stability Board (FSB), the Group of Seven (G7), the Group of Twenty (G20), and the International Monetary Fund (IMF). In such meetings, the Bank also played a leadership role in international consensus building. Furthermore, to ensure economic and financial stability in Asia, it boosted international monetary cooperation through, for example, currency swap arrangements, while also expanding and enhancing technical assistance, most of which was provided within the region. Given these accomplishments, the Bank considers that it achieved its intended objectives in contributing to the response to globalization on the international financial front.

6. Contribute to the Regional Economic and Financial Environment

With a view to contributing to the regional economic and financial environment, the Bank conducted its business operations in a stable manner even at times of disaster, making due use of the functions available at its Head Office, branches, and local offices. The Bank maintained an accurate grasp of regional economic and financial conditions through close communication with local financial institutions, firms, and economic organizations, as well as through vigorous research efforts. Research findings were disseminated to each region, in addition to being utilized by the Bank in conducting monetary policy as well as in ensuring stability and improving the functioning of the financial system. The Bank also expanded and enhanced its public relations activities and information dissemination within each region. Given these accomplishments, the Bank considers that it achieved its intended objectives in contributing to the regional economic and financial environment.

7. Strengthen External Communication

With a view to ensuring broad public confidence, the Bank proceeded with efforts to clearly and accessibly communicate its conduct of monetary policy and business operations to various audiences including the general public; in this regard, it expanded its external communication platforms. In addition, the Bank worked to gain a better grasp of public opinion as well as public needs regarding its policies and business operations; for example, it strengthened its communication with financial institutions and advanced its network building with firms, economic organizations, and other parties. The Bank also made efforts to improve its statistics and contributed to discussions held by the government toward the refinement of economic statistics. To promote financial literacy among the public, the Bank supported the activities of the Central Council for Financial Services Information, in cooperation with relevant parties. Given these accomplishments, the Bank considers that it appropriately pursued its objectives in strengthening external communication.

B. Organizational Management

1. Ensure the Appropriate Conduct of Business Operations given Changes in the Bank's Environment

With a view to enhancing capability in planning business operations in response to changes in its environment, the Bank revised its organizational structure, which included changes that enabled it to conduct in-depth off-site monitoring of financial institutions and to effectively plan, coordinate, and organize international meetings relating to the financial system. It also reinforced its organizational framework to further advance initiatives pertaining to FinTech. In maintaining levels of job-specific expertise, the Bank, at its Head Office, branches, and local offices, promoted the passing on of know-how among employees and revised its business processes, incorporating ideas from employees. The Bank also steadily promoted efficiency and stability in its business operations through computerization. Given these accomplishments, the Bank considers that it achieved its intended objectives in ensuring the appropriate conduct of business operations given changes in its environment.

2. Manage Operational Risks Appropriately

With a view to continuing to conduct business operations with precision and deliberation, the Bank engaged in Bank-wide efforts to manage operational risks effectively, giving due consideration to an anticipated change in the composition of its workforce. It also promoted compliance with accepted social and ethical standards and the appropriate management of information security. Meanwhile, following an incident of theft by an employee of commemorative coins held at the Bank, the Bank took disciplinary actions against those involved and made further efforts to enhance the education and training of its employees so as to ensure complete integrity in the execution of their duties. In light of the above, the Bank considers that, in terms of the appropriate management of operational risks, there are remaining issues to address.

3. Strengthen Business Continuity Arrangements

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 such as those 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. It also strengthened cooperation with other concerned parties such as national and local governments as well as financial institutions through, for example, participating in the Central Disaster Management Council and conducting joint exercises with market participants. Given these accomplishments, the Bank considers that it achieved its intended objectives in strengthening business continuity arrangements.

Meanwhile, the Bank addressed the strategic objectives concerning management resources stated in the Strategic Priorities. In the area of human resources, the Bank, while maintaining necessary employee numbers, decided and made public the ceiling on the number of full-time employees for each fiscal year. It also worked on securing and fostering the human resources needed to execute its business operations and organizational management, mainly through enhancing education and training programs, as well as exchanging personnel with institutions inside and outside Japan. In terms of human resource utilization, the Bank expanded its recruitment of women and encouraged their promotion; it also introduced a reemployment system called the "expert staff system," with a view to making the most of the skills and know-how of experienced employees and contributing to the stable conduct of its business operations. In addition, the Bank strived to cultivate a workplace environment conducive to the well-being of all of its employees; for example, it further improved terms of employment and working conditions so that employees can balance work and childrearing. Concerning the budget for expenses, the Bank made efforts to achieve more streamlined overall spending while also securing the necessary budget. In this regard, it appropriately decided and made public the budget for expenses for each fiscal year.

IV. Looking Forward to Fiscal 2019-2023

Given these accomplishments, the Bank considers that, overall, it achieved the strategic objectives laid out in the Strategic Priorities. In light of the Bank's experience during fiscal 2014-2018, the following matters will require consideration in conducting business operations and organizational management going forward.

First, it is important that the Bank continue to work cohesively to fulfill its missions of achieving price stability and ensuring the stability of the financial system. In this regard, it is also necessary for the Bank to communicate to the public its policies and business operations in a readily understandable way and to listen carefully to outside opinion.

Second, it has become increasingly important that the Bank appropriately address significant changes in the environment, including IT innovations such as digitalization, in order to properly perform its role as the central bank of Japan.

Third, as the Bank's missions are fulfilled through the execution of a wide range of central banking operations, it is essential that the Bank execute its business operations with stability and integrity so as to secure public confidence even within a changing environment.

Taking the above matters into consideration, the Bank will conduct its business operations and organizational management in line with the Medium-Term Strategic Plan (Fiscal 2019-2023) released today.

Note:

• 1.Decided by the Policy Board on March 22, 2019.

Appendix 4: Medium-Term Strategic Plan (Fiscal 2019-2023)^1,2

I. Introduction

The Bank's Medium-Term Strategic Plan (Fiscal 2019-2023) (Plan) sets the basic direction for the Bank's business operations and organizational management during the five-year period.

The Plan's content will remain, in principle, fixed during fiscal 2019-2023, with a view to clarifying the Bank's objectives over the medium term and to ensuring proper assessment of its performance.

The Bank will conduct an interim review of the Plan in or around fiscal 2021, in order to enable the Bank to address any changes in the environment. It will flexibly revise the Plan as appropriate in response to any significant changes.

II. The Bank's Organizational Principles

The Bank's organizational principles constitute the set of fundamental values to be respected by the Bank, as the central bank of Japan. The officers and employees of the Bank must respect these principles at all times in the conduct of business operations. The Bank will secure 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.³

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

Excellence
The Bank shall pursue excellence in the provision of central banking services, responding appropriately to changes in the environment.

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

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

Turning to the environment surrounding central banks, economic and financial globalization has continued. Meanwhile, innovation and application of information technology (IT) such as digitalization have accelerated, and this has started to produce wide-ranging and diverse effects on economic and financial activities. In Japan, the economic and financial impact of structural social changes such as the declining and aging of the population has been increasing. In the wider context of the global economy and society, Japan is expected to address the Sustainable Development Goals (SDGs) adopted in 2015 at the United Nations General Assembly. These conditions present central banks with an increasingly wide range of challenges, and it has become ever more important for them to respond appropriately to changes in the environment.

Based on the above understanding, in order to properly perform its role as the central bank of Japan, the Bank has set the following three management guidelines for the Plan.

A. Work Cohesively to Fulfill Its Missions

The Bank's missions are to achieve price stability and to 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 continue to work cohesively to fulfill these missions, with its officers and employees sharing the understanding that doing so promotes the public interest. In this regard, it is important for the Bank to communicate to the public its policies and business operations in a readily understandable way and to listen carefully to outside opinion. Recognizing this, the Bank will further enhance its communication while expanding its relationships both inside and outside Japan.

B. Enhance Flexibility in Responding to a Changing Environment

The environment surrounding central banks has been subject to significant change, and thus it has become important for them to enhance their flexibility in responding to these changes. To this end, the Bank will reinforce its operational arrangements for responding to such changes through initiatives including continuously reviewing and revising its business operations, raising operational efficiency, and making effective use of management resources. It will also secure the staff needed to effectively execute its business operations and organizational management by fostering human resources with a high degree of central banking expertise while also promoting diversity in the workplace. With this in mind, the Bank will cultivate a workplace environment favorable to improving the productivity of business operations and conducive to varied and flexible working arrangements, so that each employee can realize their full potential.

C. Execute Business Operations with Stability and Integrity

The Bank's missions are fulfilled through the execution of a wide range of central banking operations; the stability and integrity with which it executes these operations are what underpin public confidence in the Bank. Meanwhile, central banks have been facing, and are expected to continue to face, an increasingly wide range of challenges. Given these considerations, the Bank will ensure the stable execution of business operations by managing its operational risks properly while maintaining and further enhancing the operational reliability and individual expertise of its employees, which have been cultivated through long years of workplace experience. It will also continue to secure the complete integrity with which its officers and employees execute their duties.

IV. Challenges Accompanying IT Advances

The Bank will pursue its strategic objectives for business operations and organizational management, in accordance with the organizational principles that constitute the Bank's fundamental values, and the management guidelines that indicate the priorities of the Plan. In a situation where advances in IT have started to produce wide-ranging and diverse effects on economic and financial activities, it is highly important for the Bank to address the accompanying challenges in conducting both business operations and organizational management.

While considering from a medium- to long-term perspective how the growing impact of advances in IT will affect the Bank's business operations and the conditions at counterparties such as financial institutions, the Bank will proactively address any new challenges that arise and make all necessary operational adjustments. With regard to organizational management, the Bank, putting an emphasis on further use of IT, will tackle a wide range of tasks to improve operational efficiency, reduce operational risks, and use management resources effectively throughout the five-year period of the Plan. The Bank will also coordinate its efforts with the initiatives of the government and private sector in utilizing IT.

V. Strategic Objectives for Business Operations

The Bank will focus on the following strategic objectives for its business operations.

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

On its way to achieving sustainable growth with price stability, Japan's economy is expected to experience various changes in economic and financial conditions, including the impact of advances in IT.

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

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

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

It is essential to ensure the 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, formulate, and execute business operations such as the selection of financial institutions that can hold current accounts at the Bank and the provision of loans.

The Bank, through on-site examinations and off-site monitoring, will also thoroughly assess business conditions at individual financial institutions in terms of their business environments, business strategies and operations, risk management, profitability, and capital bases, while considering the impacts of demographic changes and advances in IT. In particular, due attention will be paid to structural issues affecting their profits and to changes in their risk profiles accompanying developments in their business operations at home and abroad. Based on its assessments, the Bank, while utilizing IT, will identify and share issues of managerial concern with financial institutions and provide support as they make necessary improvements.

In planning and formulating financial system policy measures, the Bank will continue to place importance 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, taking into consideration, for example, the diversification of financial service providers.

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

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

C. Enhance Payment and Settlement Services and Reinforce Market Infrastructures

The Bank will enhance Japan's payment and settlement services in response to the diversification of payment and settlement needs and financial globalization while maintaining an accurate grasp of environmental changes such as the spread of new financial and settlement services and operational changes at financial institutions. From this perspective, the Bank, as a central bank, will actively contribute to discussions and initiatives regarding new possibilities and challenges accompanying IT advances through close communication with a wide range of relevant service providers at home and abroad.

Regarding its payment and settlement services, the Bank will promote initiatives to realize payment and settlement for cross-border transactions in yen or Japanese government bonds by making effective use of the Bank of Japan Financial Network System (BOJ-NET). It will also proceed with wide-ranging deliberations on the applicability of newly developed IT to its payment and settlement infrastructure.

Meanwhile, the Bank will conduct appropriate oversight of financial market infrastructures, while considering changes in the environment.

The Bank will also work actively to reinforce financial market infrastructures 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

The Bank will work to secure confidence in the use of banknotes and coins while employing new technology. In this regard, it will conduct business operations such as the receipt and payment of cash and the examination of banknotes and coins in a precise and stable manner. In addition, the Bank will, in cooperation with relevant institutions, strengthen the monitoring of the cleanliness of banknotes in circulation and enhance its efforts to address counterfeiting.

The Bank will also maintain an accurate grasp of trends in cash circulation and improve the stability and efficiency of operational frameworks based on the information gathered.

With regard to banking operations, the Bank will, on a daily basis, continue to settle financial transactions involving current account deposits that financial institutions hold at the Bank and conduct market operations, implementing all of these in an accurate and stable manner. As for treasury funds and Japanese government securities (JGSs), the Bank will carry out a wide range of services with precision.

For both banking operations and services relating to treasury funds and JGSs, the Bank will continuously assess the stability and efficiency of its operational and other frameworks, while taking due account of, for example, trend changes in workloads and developments in the environment surrounding counterparties.

E. Contribute to International Finance amid Globalization

Amid further globalization and continuing growth in business and financial transactions between Japanese institutions and counterparties located in Asia, economic and financial stability around the globe, particularly in Asia, has become ever more 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 relevant authorities at home and abroad. It will also play a leadership role at many different international meetings, while paying appropriate attention to Japan's stance. Furthermore, in support of efforts to ensure economic and financial stability in Asia, the Bank will, among other initiatives, further strengthen monetary cooperation and technical assistance work in the region.

F. Contribute to Regional Economic and Financial Environments

Making due use of the functions available at its head office, branches, and local offices in activities such as providing appropriate central banking services in each region of the country, the Bank will contribute to regional economic and financial environments, with a view to supporting sustainable development.

Regarding central banking services, the Bank will aim to ensure that it can conduct its business operations in a stable manner even at times of natural disasters. It will maintain an accurate grasp of regional economic and financial conditions and of region-specific challenges through close communication with local financial institutions, firms, and economic organizations. At the same time, the Bank will provide careful explanations of (1) its view of Japanese and overseas economic and financial conditions and (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 clearly and accessibly communicate its conduct of monetary policy and business operations not only to financial professionals but also to the general public at home and abroad.

Aiming to better grasp 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 relationships with people, firms, and economic organizations across a wide range of fields.

Taking the above matters into consideration, the Bank will work to achieve multilateral and effective communication by making use of various communication platforms, including its website. It will also aim to enhance the content of in-house tours of its head office and branches.

The Bank will publish the findings from its research and analysis in effective ways. It will also appropriately compile and release statistics, mainly with a view to improving their user-friendliness and responding to changes in Japan's economic and industrial structure.

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 and associated committees to promote financial literacy among the public.

VI. Strategic Objectives for Organizational Management

A. Organizational Management

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. Execute Business Operations Flexibly and Secure Requisite Staff

In view of the increasingly wide range of challenges facing central banks and the need to be able to respond flexibly to changes in the environment, the Bank will enhance its capability in planning business operations by accumulating a high degree of central banking expertise as well as maintaining and further enhancing the individual staff expertise cultivated through long years of workplace experience. It will revise and restructure its business processes to make full use of IT and work actively to enhance efficiency and stability in its business operations via computerization. Through these efforts, the Bank will further increase its effective use of management resources.

The Bank will secure the staff -- that is, individuals possessing a high degree of central banking expertise -- that it requires for executing its business operations and organizational management. At the same time, it will continue to foster employees' ability to tackle new tasks and to excel in international arenas, while taking into consideration changes in working arrangements. In addition, the Bank will further promote diversity in the workplace by, for example, improving the inclusion of women and senior employees and expanding the opportunities available to them. It will also steadily realize varied and flexible working arrangements to further improve the work-life balance and well-being of its employees. Through these efforts, the Bank will continue to foster a workplace environment in which diverse employees can realize their full potential.

2. Manage Operational Risks Appropriately

In order to maintain public confidence, it is important for the Bank to continue to execute all business operations with precision and deliberation. To this end, it will work cohesively to manage operational risks effectively, giving due consideration to changes in the composition of its workforce and in working arrangements. In doing so, the Bank will promote the reduction of operational risks and efficiency of risk management by making active use of IT.

In managing operational risks, it is essential for the Bank to ensure that its officers and employees execute their duties with integrity. To this end, the Bank will continue to work to ensure strict compliance with accepted social and ethical standards and to promote the appropriate management of information security.

3. Strengthen Business Continuity Arrangements

Based on its experience following the Great East Japan Earthquake, the Kumamoto Earthquake, and a succession of other natural disasters, as well as the government's reappraisal of potential damage scenarios for large-scale earthquakes such as those directly hitting Tokyo or occurring in the Nankai Trough area, the Bank will further reinforce its business continuity arrangements through the effective use of its management resources.

B. Management Resources

1. Number of Employees

In order to carry out the strategic objectives stated in the Plan, the Bank will work to secure the necessary employee numbers and to increase the efficiency of its overall business operations. The ceiling on the number of full-time employees for each fiscal year will be decided and made public based on this basic understanding.

2. Expense Budget

In order to carry out the strategic objectives stated in the Plan, the Bank will secure the necessary budget and achieve more streamlined overall spending. The budget for each fiscal year will be decided and made public based on this basic understanding.

VII. Performance Reviews of the Plan

With a view to (1) steadily carrying out the strategic objectives for business operations and organizational management stated in the Plan 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 Plan every fiscal year. In addition, it will conduct a comprehensive review of its performance over the entire period of the Plan.

Notes:

• 1.Decided by the Policy Board on March 22, 2019.
• 2.Following The Bank of Japan's Strategic Priorities for Fiscal 2014-2018 ending in March 2019, the Bank formulated this statement for the five-year period starting April 2019.
• 3.The 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 4: The Bank of Japan's Budget for Expenses for Fiscal 2019

This section is not included in the HTML version of the report.

Attachment 2 for Appendix 4: The Ceiling on the Number of Full-Time Employees of the Bank of Japan for Fiscal 2019

This section is not included in the HTML version of the report.

---

• Back to CONTENTS

Information

I. Bank of Japan Website

https://www.boj.or.jp/en/index.htm

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:

https://www.boj.or.jp/en/announcements/education/oshiete/index.htm

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:

https://www.boj.or.jp/en/z/tour/b/index.htm

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":

https://www.boj.or.jp/en/announcements/education/thisisboj.htm

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":

https://www.boj.or.jp/en/announcements/education/boj_pamphlet.htm

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:

https://www.stat-search.boj.or.jp/index_en.html

Provides time-series statistical data released by the Bank which are available for viewing, searching, downloading, and creating 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 Bank's website: https://www.boj.or.jp/en/about/outline/location/index.htm

• Bank of Japan Currency Museum

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

  https://www.imes.boj.or.jp/cm/english/index.html

  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.

Bank of Japan Otaru Museum

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

https://www3.boj.or.jp/otaru-m/en/index.html

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.

III. Publications and Reports

About the Bank

About Monetary Policy

Reports & Research Papers

Data Compiled in Statistical Publications

---

• Back to CONTENTS

Request for Comments (Send E-mail to: comments@boj.or.jp)

Please give us your comments so that the Bank can improve the content of the Annual Review and make it more useful for readers (e.g., comments on the release of the report in HTML format, chapters you were especially satisfied/dissatisfied with, design and layout, and the kind of information you wish to see more of in future editions) by sending an e-mail with the subject line of "Annual Review." Your comments and personal details will be treated with full confidentiality and used solely for the purpose of enhancing the content of the Annual Review.

Notice

Please contact below in advance to request permission when reproducing or copying the content of this publication for commercial purposes.
Public Relations Department, Bank of Japan
E-mail : comments@boj.or.jp
Please credit the source when quoting, reproducing, or copying the content of this publication.