TOKYO : The Bank of Japan's surprise decision last week to raise a cap on interest rates was partly driven by policymakers' growing worries ultra-loose monetary settings would spark a repeat of the bruising yen selloff that the economy saw last year.
The BOJ's decision shook markets on Friday and contrasted sharply with Ueda's more cautious comments in recent months about the dangers of retreating too quickly from accommodative Kuroda-era policies. Most spoke on condition of anonymity as they were not authorised to speak publicly, or declined to comment on record due to the sensitivity of the matter.
Under YCC, first introduced in 2016, the central bank seeks to rev up stagnant consumer demand by keeping credit extremely ample, specifically by guiding short-term rates at -0.1 per cent and the 10-year bond yield around 0 per cent. When asked about the role the government played in the BOJ's July decision, Chief Cabinet Secretary Hirokazu Matsuno told reporters on Thursday he was not aware of any government intervention. He also said the government"always communicates closely with the BOJ," but declined to comment on specifics.As the yen renewed its fall in May, a handful of bureaucrats at the BOJ's elite monetary affairs department began brainstorming ideas on how to loosen the bank's grip on yields.
While one board member called for an early review of YCC, most saw no need to take immediate action. Dovish board members like Seiji Adachi and Asahi Noguchi also publicly ruled out the chance of an early YCC tweak. The government kept applying pressure on the BOJ to pay more attention to currency market consequences of its policy.
Source: Financial Digest (financialdigest.net)
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