The Bank of Japan decision and its unscheduled release time

The Policy Board 

Monetary policy in Japan is set by the Policy Board of the Bank of Japan, which comprises the Governor, two Deputy Governors and six other members appointed by the Cabinet with the consent of both houses of the Diet. All nine vote. The board is deliberately drawn from outside as well as inside the Bank, with members historically coming from banking, industry, academia and economic research.

The vote is published by name in the statement, in the same manner as the United Kingdom and unlike the euro area. Dissents are recorded, and because Japanese policy has spent long periods at unconventional settings, dissents have frequently concerned the design of an instrument rather than the level of a rate.

The release has no fixed minute 

Every other major central bank publishes at a scheduled instant, enforced to the second. The Bank of Japan does not. Its meetings run over two days and the statement is issued when the board concludes its discussion, which in practice falls in a window around the middle of the Tokyo trading day but is not announced in advance and varies from meeting to meeting.

Practitioners have long treated the timing itself as information, on the folk convention that a longer deliberation indicates a contested decision. The convention is unverifiable, since the board does not publish the reason for a late conclusion, and it is contradicted often enough that it is best described as market lore rather than as an indicator. What is not lore is the mechanical consequence: because the release moment is unknown, quoting conditions in yen pairs are affected across a window rather than at a point, and the ordinary practice of anticipating a scheduled instant does not apply.

The Governor's press conference follows in the afternoon Tokyo time, at a scheduled hour, and the Outlook Report is published alongside the statement at four of the eight meetings. The summary of opinions follows about ten days later, and the full minutes are published after the subsequent meeting has approved them, which places them roughly two months behind the decision.

The instruments, which are more than a single rate 

Japan's policy framework has been the laboratory in which most unconventional monetary instruments were first tried, and a decision can therefore concern several distinct levers.

• The short-term policy rate, applied to a portion of the balances financial institutions hold at the Bank. Japan pioneered a negative setting on part of those balances, structured in tiers so that only marginal balances attracted the negative rate.
• Control of the government bond yield curve. Under a yield curve control framework the Bank set a target for a longer-dated government bond yield and undertook to purchase whatever quantity was necessary to hold it, which is a commitment on price rather than on quantity. Adjustments to the permitted band around that target were among the most consequential decisions the board took.
• Asset purchases, including government bonds and, unusually among central banks, exchange traded funds holding domestic equities and real estate investment trusts.
• Funds-supplying operations directed at particular lending purposes, which are closer to credit policy than to conventional monetary policy.

The existence of several instruments changes how a meeting is read. A decision that leaves the policy rate unchanged is not necessarily a decision that changes nothing, because a technical adjustment to a purchase programme or a band can be more consequential for the government bond curve than a change in the overnight rate would be.

Why Japanese policy reaches currency markets 

For an extended period Japan maintained the lowest policy rate among major economies, which made the yen the conventional funding currency for positions that borrow in a low-yielding currency and hold a higher-yielding one. That structure, generally called a carry trade, links Japanese policy to instruments that have nothing to do with Japan: a change in the interest rate differential alters the cost of the funding leg for positions held across many markets at once.

Currency intervention is a different institution's decision 

One structural feature of Japan is regularly reported incorrectly. Authority over foreign exchange intervention rests with the Ministry of Finance, not with the Bank of Japan. The Ministry decides whether and when to intervene; the Bank executes the operation as its agent. A statement by the Minister of Finance or a senior currency official therefore carries a different institutional weight from a statement by the Governor, and the two are not interchangeable.

Intervention operations themselves are not announced in advance and are not confirmed at the time. Monthly aggregate figures are published afterwards with a lag, which means the fact of an intervention is inferred from market behaviour and from central bank account data before it is ever confirmed. Verbal comment intended to influence the exchange rate without any operation, sometimes called jawboning, is a separate and more frequent activity.

How a decision is conventionally read 

Analysts read the statement for changes to any of the instruments rather than to the rate alone, read the Outlook Report's inflation projections for the final forecast year, and read the vote for dissent on instrument design. A separate convention watches the Bank's own bond purchase operation schedules, published outside meetings, as evidence of how a stated framework is being implemented in practice.