The theory of central bank independence (CBI) is predicated on providing central bankers with political insulation that would allow them the latitude to take tough measures to “take away the punch bowl,” thereby enhancing their ability to control inflation. Driven by theory, the history of high inflation, and politics, CBI diffused relatively rapidly, including to the Bank of Japan (BOJ) in the late 1990s. In this paper, we use the case of Japan to illustrate the political limits of statutory independence and demonstrate how the degree of de facto independence can vary over time with no legal changes. Specifically, we highlight how the BOJ lost a degree of de facto independence with no de jure change due to two distinct processes: an electoral process that allowed the government to win a mandate and appoint new Policy Board Members to reorient monetary policy, and structural politicization resulting from greater intervention in asset prices.
