Looking back, the following two cycles have often synchronized: the cycle of economic activity, or the output gap, and the financial cycle – in other words, the buildup of financial imbalances and their collapse. That is because of a feedback loop in which changes in the output gap and changes in the financial cycle have reinforced each other, leading to larger changes for both.
In Japan, monetary policy and macroprudential policy are therefore considered to be complementary. The Bank’s activities on the macroprudential front are in line with its mission as stipulated in the Bank of Japan Act, just like its microprudential activities, such as on-site examinations and off-site monitoring.