Like most modern Japanese institutions, the Bank of Japan was founded after the Meiji Restoration. Prior to the Restoration, Japan's feudal fiefs all issued their own money, hansatsu, in an array of incompatible denominations, but the New Currency Act of Meiji 4 (1871) did away with these and established the yen as the new decimal currency, which had parity with the Mexican silver dollar. The former han (fiefs) became prefectures and their mints became private chartered banks which, however, initially retained the right to print money. For a time both the central government and these so-called "national" banks issued money. A period of unanticipated consequences was ended when the Bank of Japan was founded in Meiji 15 (10 October 1882), under the Bank of Japan Act 1882 (27 June 1882), after a Belgian model. That period ended when central bank—the Bank of Japan—was founded in 1882, after the Belgian model. It has since been partly privately owned. The national Bank was given a monopoly on controlling the money supply in 1884, and by 1904 the previously issued notes were all retired. The Bank started out on the silver standard, but adopted the gold standard in 1897.

In 1871, a group of Japanese politicians known as the Iwakura Mission toured Europe and the US to learn western ways. The result was a deliberate state led industrialization policy to enable Japan to quickly catch up. The Bank of Japan used taxes to fund model steel and textile factories.