The Bank of Japan Act clearly stipulates that one of the Bank’s institutional objectives 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 fact that the Bank of Japan during the recent financial crisis decided to implement measures that are extraordinary for a central bank, such as the purchase of stocks held by financial institutions and the provision of subordinated loans, was ultimately to achieve the objective stipulated in the Bank of Japan Act.
The second point is that the Bank plays the role of “lender of last resort.” The Bank of Japan is “the bank of banks” and can contribute to ensuring financial system stability by providing funds as the lender of last resort when it judges this to be necessary to prevent the materialization of systemic risk.