Bank of Japan’s policy tweak drew rare request from government for a break

People walk at the headquarters of Bank of Japan in TokyoPeople walk at the headquarters of Bank of Japan in Tokyo, Japan, January 18, 2023. REUTERS/Issei Kato/File Photo

TOKYO, Jan 23 (Reuters) – Government representatives who attended the Bank of Japan's policy meeting in December were granted a half-hour adjournment to contact their ministries, minutes showed, a sign the decision to tweak its yield control policy may have been hastily arranged.

At the Dec. 19-20 meeting, the BOJ kept its ultra-easy monetary policy but shocked markets with a surprise tweak to its yield curve control (YCC) policy that allowed long-term interest rates to rise.

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

Governor Haruhiko Kuroda approved the request as chair of the BOJ meeting, according to the minutes.

"The government understands the matters discussed today were aimed at conducting monetary easing in a more sustainable manner with a view to achieving the BOJ's price target," a Ministry of Finance (MOF) official attending the meeting was quoted as saying, referring to the central bank's inflation objective.

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

The two representatives did not voice opposition to the yield control tweak nor any 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 voice the government's views on policy decisions, though they cannot cast votes.

The apparent reason for the representatives to request an adjournment would have been to contact their ministries on what government view to express on the BOJ's decision to tweak YCC – indicating that they had not been expecting it and that the meeting had been arranged quickly.

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

At the December meeting, the band set around the 10-year yield target was doubled to 0.5 percentage point up and 0.5 percentage point down, a move aimed at ironing out market distortions caused by the BOJ's heavy bond buying.

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