Window guidance

Window guidance (Japanese: 窓口指導) or informal guidance, is an informal policy instrument used to regulate the supply of credit in an industry or sector. Window guidance typically involves the use of benevolent compulsion in order to regulate the supply of credit as a way to achieve policy targets such as sustainability.^[1] Window guidance involves the use of monetary policy instruments including lending quotas as an informal way to subsidize or regulate the volume of credit in an industry or financial sector.^[2] Window guidance is often associated with the Bank of Japan's policies during the Japanese economic miracle,^[3] although similar policies have been widely used in the post WWII era in other Asian countries, as well as Western European countries (France, UK, Belgium, Germany) and Canada.^[4]

Window guidance is often criticized for causing inefficient capital allocation as well as being a form of central planning.^[5]

History

Japan

Window guidance originated as a way for the Japanese government to finance Japanese rebuilding efforts during the early stages of the Japanese economic miracle.^[5] Under the Bank of Japan Law of 1958, the Ministry of Finance took control over the Bank of Japan's administration, embedding Japanese government fiscal goals into the Bank of Japan's instruments and allowing for greater flexibility in the regulation of the money supply.^[6] During Hayato Ikeda's income doubling plan during the 1960s, the Bank of Japan was given "full control" of the monetary instruments in the economy and was fully responsible for the swings in the business cycle during the 1960s to 1970s period.^[7] This, combined with strict capital controls suppressing the private sector's ability to issue corporate bonds,^[8] gave the Bank of Japan a substantial amount of influence in the bond market.^[9]

This control, however, was eroded during the liberalization of the

Between 2007 until 2015, the PBOC introduced green window guidance targets in order to discourage banks to lend to carbon-intensive and polluting activities.[1]

References