Japanese Government Officials Requested BOJ to Postpone December Meeting Resolutions over Market Concerns

The Bank of Japan (BOJ) released minutes of its December meeting on Monday, stating that Japanese government representatives attending the Dec. 19-20 BOJ meeting had urged the BOJ board to postpone the announcement of the meeting’s resolution. This was due to a signal that the BOJ would adjust its yield curve control (YCC) policy at this meeting.

According to the minutes, the December 20 meeting was scheduled to announce its resolutions at 10:51 a.m. but was asked by government officials to postpone it for 11:28 a.m. local time. The resolution was finally announced at 11:54 a.m. local time. This is the first postponement of the resolution of the meeting since June 2021.

The fact that Japanese government officials requested the BOJ to postpone the resolution of the meeting reflected their concern that it would cause panic in financial markets. The resolution was also not discussed with government officials beforehand.

Finally, representatives from the Ministry of Finance and the Cabinet Office of Japan accepted the BOJ’s explanation that the YCC policy adjustments at the meeting aimed at improving the sustainable monetary stimulus mechanism.

At the December 20, 2022 meeting, the BOJ’s board voted to keep the policy rate unchanged at -0.1% and decided to increase its purchases of Japanese government bonds to 9 trillion yen ($67.5 billion) per month from the current 7.3 trillion yen per month, with the goal of holding the 10-year government bond yield at 0%.

But the BOJ also surprised the market by announcing an expansion of the 10-year bond yield frame of the Japanese government to move in the range of -0.5% to +0.5%, which investors saw as a signal of tighter control over monetary policy, as the BOJ had maintained an ultralow rate policy for a long time.

After the meeting, volatility in financial markets became more evident, and the BOJ decided to extend the 10-year yield curve higher from the previous level of +0.25%, which was seen as a framework that distorted the yield curve from market fundamentals. The BOJ stated that it decided that now is the right time to correct that distortion and improve the market mechanism to be more efficient.

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