The Bank of Japan’s policy adjustment led to a rare government request for a pause

TOKYO, Jan. 23 (Reuters) – Government officials who attended the Bank of Japan’s policy meeting in December were given a half-hour delay to contact their ministries, the minutes showed, underscoring the importance of the decision by the central bank to change its link to the bond market.

At its December 19-20 meeting, the BOJ maintained its ultra-easy monetary policy, but shocked markets with a surprise change in its yield curve management (YCC) policy, which allowed long-term interest rates to rise.

Before the nine-member board voted on the steps, government representatives requested that the meeting be suspended for about 30 minutes, minutes showed Monday.

According to the minutes, Governor Haruhiko Kuroda approved the request as chairman of the BOJ meeting.

“The government understands that the matters discussed today were intended to implement monetary easing in a more sustainable manner with a view to meeting the BOJ price target,” said a Ministry of Finance (MOF) official. who attended the meeting, referring to the bank’s central inflation target.

Another government representative, who belonged to the Cabinet Office, urged the BOJ to be vigilant about the impact of rising inflation, supply constraints and market volatility on Japan’s economy, the minutes showed.

The two representatives did not speak out against the yield control adjustment, or other elements of the BOJ’s discussion, the minutes showed.

Two government representatives – one from the MOF and another from the Cabinet Office – are legally entitled to attend BOJ policy meetings and express the government’s views on policy decisions, although they cannot vote.

In a press conference on Monday, Finance Minister Shunichi Suzuki said he had been briefed by the Treasury Department representative of the BOJ’s expected decision during the adjournment.

It is rare for government representatives to ask for BOJ meetings to be postponed, which only happens at times of major decisions, such as a change in monetary policy.

For example, the government was adjourned at a meeting when the BOJ introduced negative interest rates in January 2016, the minutes of that meeting show.

Under YCC, the BOJ sets the short-term interest rate target at -0.1% and the 10-year bond rate at around 0% with a narrow margin of tolerance.

At the December meeting, the range around the 10-year target was doubled to 0.5 percentage point up and 0.5 percentage point down, a move to smooth out market distortions caused by the BOJ’s heavy bond purchases.

Reporting by Leika Kihara; Edited by Bradley Perrett and Jacqueline Wong

Our Standards: The Thomson Reuters Principles of Trust.

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