The Origins of the Japanese Banking Panic of 1927

By rejecting government's bailout requests, the Bank of Japan knowingly caused a banking panic and cabinet change in 1927. The central bank was neither acting as a political agent, nor trying to deal with moral hazards. The refusal was to sustain monetary contraction aimed at lifiting gold embargo, an objective deemed urgent as Japan had been left as the only major off-gold country. The instability of party politics and organizational growth made the central bank sufficiently autonomous to defy the finance ministry.