The Bank of Japan’s (BoJ) monetary policy board discussed at its meeting last October the potential impact of a future withdrawal of its ultra-low interest rates, according to minutes released today.
At its last meeting, held between last Monday and Tuesday, the Japanese central bank decided to maintain its negative reference interest rates and the objective of long-term government bonds oscillating around 0%, although it extended the range of quotation for these assets.
Many analysts and investors interpreted this measure as a first step towards tightening its monetary policy in the medium term, and in particular as a foretaste of interest rate hikes to come, which caused a fall in the Tokyo Stock Exchange and a rapid appreciation of the yen.
The minutes of the previous meeting in October show that the members of the monetary policy board already stressed then the need to be cautious when addressing future increases in reference rates because of their impact on mortgages and markets.
The board agreed at that meeting on October 27 and 28 to keep the entity’s broad flexibility strategy unchanged, although some of the members pointed out the need to analyze how rising inflation is affecting wages and household spending.
“It is important to continue to analyze how a future exit from ultra-loose monetary policy could affect markets, and whether market participants could be prepared for this move,” one BoJ board member said of a possibility already on the table at Japan’s central bank.
The movement of the BoJ this week surprised the markets because most experts expected some gesture from the entity that would point to rate hikes in the second or third quarter of next year, once the term of the current governor of the Japanese central bank, Haruhiko Kuroda, ends.
The governor himself denied in a press conference last Tuesday that the measure “is a rise in interest rates in practice or a monetary tightening or revision of the control of the yield curve itself.”
Kuroda added that the BoJ “seeks to improve the functioning” of the domestic bond market and the sustainability of its monetary policy in the face of the impact of fluctuations in global markets, as well as “a positive effect on corporate finances.”