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The Bank of Japan (BOJ) holds meetings on the conduct of monetary policy eight times a year. That meeting is the Monetary Policy Meeting. Investors keep an eye on the results of each meeting, including policy changes that will be announced after the conclusion of each meeting.
This is because changes in monetary policy at monetary policy meetings can affect stock and bond markets. Investors are encouraged to understand how meetings work, as they can have a significant impact on the cryptocurrency market as well.
In this article, we will introduce the overview of the Monetary Policy Meeting, the contents of the most recent meeting, and the impact on the stock and cryptocurrency markets.
table of contents- What is Monetary Policy Meeting?
- 2023 monetary policy meeting schedule
- Current Monetary Policy
- Developments at the Most Recent Monetary Policy Meetings
- Impact of revision of yield curve control (YCC)
- Focus on developments in future monetary policy meetings
1. What is a Monetary Policy Meeting?
The Monetary Policy Meeting is a meeting to decide the monetary policy of the Bank of Japan, which is held eight times a year (every two days). Nine members of the Bank of Japan participate in this meeting as policy committee members (the governor, two deputy governors, and six members of the deliberation committee), and policies are decided by majority vote.
The main contents of the meeting are as follows.
- Policy on Money Market Operations (Basic Policy of the Bank of Japan)
- Base discount rate/loan interest rate (Base interest rate when the Bank of Japan lends funds to private financial institutions)
- Deposit reserve ratio (percentage of deposit balance of financial institutions that must be deposited with the Bank of Japan)
- monetary policy instruments
- Basic Views on Financial and Economic Conditions
After the results of the meeting are announced, the stock market and bond market may react sensitively, so it is a good idea to keep an eye on it.
See meeting results published by the Bank of Japan
1-1. What is the impact of the change of governor of the Bank of Japan for the first time in 10 years?
As a recent trend, in April 2023, the governor of the Bank of Japan will be replaced for the first time in 10 years. Haruhiko Kuroda, who took office as Governor of the Bank of Japan on March 20, 2013, will expire on April 8, 2023. Since the term of office of the Governor of the Bank of Japan is five years, Governor Kuroda served two terms.
The new president is Kazuo Ueda, the first post-war scholar. New Governor Ueda has a history of serving as a deliberative member of the Bank of Japan Policy Board in the past, and is said to have a deep relationship with the Bank of Japan.
In his first press conference after taking office, he indicated a policy of “maintaining monetary easing” and postponed the policy change of former governor Kuroda. However, he is said to have a different way of thinking about the economy than former Governor Kuroda, and there is a possibility that policy revisions will be made in the long term.
2. 2023 monetary policy meeting schedule
Monetary policy meeting dates are publicly available. The dates for 2023 are as follows:
| January 17 (Tue) and 18 (Wed) |
| March 9th (Thursday) and 10th (Friday) |
| April 27th (Thursday) and 28th (Friday) |
| June 15th (Thursday) and 16th (Friday) |
| July 27th (Thursday) and 28th (Friday) |
| September 21st (Thursday) and 22nd (Friday) |
| October 30th (Mon) and 31st (Tue) |
| December 18th (Mon) and 19th (Tue) |
source:Bank of Japan
The Monetary Policy Meeting is scheduled for one year, and after the meeting, the results of the meeting and various materials will be published on the official website of the Bank of Japan.
Refer to meeting results and materials
3. Current Monetary Policy
From here, as of March 2023, I will introduce an example of the monetary policy being implemented by the Bank of Japan.
3-1. Yield curve control (YCC) implemented since 2016
Yield Curve Control (YCC) is a monetary policy implemented by the Bank of Japan since September 2016. Set a target for long-term interest rates and buy and sell the amount of government bonds necessary to achieve the target.
In the first place, the yield curve is a graph that shows the relationship between the yield (interest rate) of a bond and the redemption period, and the shape of the graph changes to reflect the psychology of those who lend money to the government (investors who buy bonds).
Specifically, an upward-sloping graph, known as a “forward yield”, means investors want more interest on long-term loans than on short-term loans. Conversely, a downward sloping graph, called an “inverted yield”, indicates that investors want more interest on short-term loans than on long-term loans.
The occurrence of an inverted yield curve is rare compared to a forward yield curve, and it is possible that investors are looking for a short-term redemption because they are worried about the economic outlook in the near future.
It should be noted that during monetary easing and normal times, the yield tends to form forward, and during monetary tightening, it tends to form an inverted yield.
3-2. The year-on-year rate of price increase in January 2023 will exceed 4%
Since January 2013, the Bank of Japan has set the year-on-year rate of increase in consumer prices (inflation rate) at 2% in order to achieve the price stability target as one of its monetary policies.
There are three main reasons for setting the inflation target at 2%.
One is the “upward bias”. Since the consumer price index tends to be calculated with a statistically higher value than the actual value, it is necessary to set a higher value in advance. It is also necessary to secure room for interest rate cuts and to enhance the ability of monetary policy to respond to economic deterioration. This way of thinking is called “Norishiro”.
Furthermore, the target figure of 2% is set as a global standard in many major developed countries. In fact, former Deputy Governor Amamiya said just before he took office that the 2% target common to major developed countries would lead to stabilization of the exchange rate trend.
However, as of January 2023, the year-on-year inflation rate will exceed 4%, exceeding the target. The inflation rate is expected to peak in January 2023, and some experts believe that it will decline in the second half of 2023. .
4. Developments at the Most Recent Monetary Policy Meetings
I explained the main monetary policies currently being implemented by the Bank of Japan. Next, I would like to introduce developments at the most recent monetary policy meeting.
4-1. Decided to make yield curve control more flexible at the December 2022 meeting
At the meeting in December 2022, it was decided to expand the fluctuation range of the 10-year JGB yield from the conventional “about ±0.25%” to “about ±0.5%.” The decision is called a “de facto rate hike”.
Until now, Governor Kuroda had shown opposition to the revision of the yield curve control, so the widening range of fluctuation was taken by the market as a surprise.
In addition, due to this change, the yen exchange rate against the dollar on December 20, 2022 will rise from the 137 yen level to the 130 yen level, with the yen appreciating by about 7 yen, which will have a major impact on the foreign exchange market.
4-2. No additional revisions to yield curve control at the March 2023 meeting
The March 2023 meeting will be Governor Kuroda’s final monetary policy meeting. What attracted attention was whether there would be any additional revisions, such as a re-expansion, to the fluctuation range of the 10-year JGB yield, which was expanded in 2022.
In conclusion, there was no change in the fluctuation range, and it was entrusted to the new system after April.
Yield curve control is worrisome and would require massive purchases of government bonds to maintain it. This reduces the liquidity of the government bond market, bloating the BOJ’s balance sheet and increasing future financial risks.
4-3. Possibility of reassessment of yield curve control under the new system
Continuing from March 2023, at the first monetary policy meeting after the new regime held in April 2023, no additional revisions were made to the yield curve control.
At the meeting after June, we expect to see some revisions to yield curve control. Attention will be paid to whether the fluctuation range should be expanded from around ±0.5% to around ±0.75% or ±1.0%, or whether the fluctuation range should be eliminated.
5. Impact of revision of yield curve control (YCC)
At the meeting in December 2022, the Bank of Japan expanded the fluctuation range of the 10-year government bond yield to “about ± 0.5%”, which is considered to be a de facto interest rate hike. I will explain how the revision of the yield curve control will affect foreign exchange, stocks, and crypto assets.
5-1. Impact on foreign exchange rate due to de facto interest rate hike
Due to the de facto announcement of the interest rate hike, the yen exchange rate against the dollar on December 20, 2022 rose from the 137 yen level to the 130 yen level, with the yen appreciating by about 7 yen, which had a significant impact on the exchange rate. The yen, which temporarily rose to 1 dollar = 150 yen in October 2022, is in the 130 yen range as of May 22, 2023.
The higher the interest rate of a currency, the higher the demand from investors. Therefore, when interest rates in Japan rise, more people will turn to yen, and the value of the yen will rise, increasing the probability that the yen will appreciate. It can be said that one of the factors behind the appreciation of the yen was that the market judged that the expansion of the fluctuation range of the 10-year government bond yield was actually an interest rate hike.
5-2. Impact on stock prices of de facto interest rate hikes
Stocks generally fall when interest rates are raised. This is because when a company borrows money, interest payments increase and profits decrease. As a result, companies will refrain from new borrowing, which will adversely affect the company’s performance and increase the possibility that the stock price will fall.
The fact that the interest rate was raised in December 2022 created a situation from a weak yen to a strong yen. A strong yen in stock prices has a positive effect on import companies. On the other hand, it can be said that the de facto interest rate hike had a negative effect on exporting companies.
6. Focus on developments in future monetary policy meetings
The Monetary Policy Meeting is a meeting held eight times a year by the Bank of Japan to decide monetary policy. Depending on the outcome of the meeting, it will affect the markets of foreign exchange, stocks and crypto assets. The widening fluctuation range of 10-year government bond yields announced in December 2022 had a major ripple effect on the foreign exchange market, which also affected the stock and crypto asset markets. Investors should keep track of the dates of monetary policy meetings and check the results as they occur.
In addition, Mr. Kuroda, who served as governor for 10 years from 2013, will change to Mr. Ueda after April 2023, so it will be interesting to see what kind of revisions will be made to monetary policy. In particular, it would be good to focus on whether to expand the fluctuation range of yield curve control, or to abolish or reduce it.
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