Window Guidance

1 min read

Window guidance is an unofficial tool of monetary policy, in which the Bank of Japan (BOJ) and Prime Minister agency request commercial banks to finance a specific company, industry, good or service, usually to finance the nation’s military industrial complex.

In the late 1980’s, Japan became the world’s second largest economy, behind the U.S., and the Japanese Imperial Palace was worth more than all of the real estate in California. Window guidance is largely credited with enabling the Japanese economic “miracle”, where Japan quickly grew into a world economic power following WWII.

Although window guidance spurred significant economic growth during this time period, the Bank was manipulating capital markets to produce war goods, which eventually resulted in stagnation and then deflation in the Japanese economy.

Learn more about how deflation can hurt the economy.