Japan's first central bank notes turned out to be a treat for rats
When Japan's new central bank put its own paper money into circulation in 1885, the notes contained konjac powder as a defence against counterfeiters. The unintended result was money that rats found delicious. Despite that hiccup, the notes caught on, and the bank went on to steer one of the world's strangest monetary histories.
Before the Meiji Restoration, Japan's feudal domains each printed their own money in incompatible denominations. The New Currency Act of 1871 replaced them with the decimal yen, pegged to the Mexican silver dollar, but newly chartered national banks kept the right to print notes for a while. Finance minister Matsukata Masayoshi pushed for a single central bank, founded in October 1882 and modelled chiefly on the National Bank of Belgium, then seen as one of Europe's best designed. By 1884 it held a monopoly on the money supply, though retiring all the older notes took another 20 years. Unusually, it has always been partly privately owned, with shares traded over the counter.
Its independence has swung back and forth. A 1942 wartime law told it to marshal the nation's total economic power in line with state policy, and those provisions stayed until a 1998 overhaul set its goals as stable prices and a stable financial system. For decades after the war it steered the economy mainly through window guidance, informal quotas on how fast commercial banks could lend, a tool that helped inflate the 1980s bubble and later inspired China's central bank.
Exchange rates tell the story in sharp strokes. After the 1985 Plaza Accord weakened the dollar, the yen soared, and the bank cut rates repeatedly to fight deflation, holding them at 2.5 percent into 1989 as property and share prices ballooned. After the bubble burst, deflation set in; the bank pioneered a zero-interest policy in 1999, quantitative easing in 2001, and from 2013 under Haruhiko Kuroda also bought shares and property trusts, becoming the largest owner of Japanese stocks.
Negative rates arrived in 2016 and ended in 2024, and in December 2025 the policy rate reached 0.75 percent, its highest in 30 years.
Source: Bank of Japan
