Japanese government makes sudden concession! Policy signal that once triggered yen crash has been revised, confirming the independence of the Bank of Japan

According to the final version of the document seen by Reuters UK on Friday (July 17), the Japanese government will explicitly state in its economic blueprint that decisions regarding specific monetary policy tools should be left to the Bank of Japan.

The document states that this assertion will be added to the footnotes section of the economic blueprint, citing relevant legal provisions and emphasizing the necessity of protecting the Bank of Japan's independence in formulating monetary policy.

This adjustment is one of several modifications made by the Japanese government based on earlier drafts. The previous version caused concerns in the market, as investors believed that the government might pressure the Bank of Japan to delay rate hikes, leading to a sell-off of the yen and Japanese government bonds.

The earlier draft stated that the Bank of Japan's policy decisions must be consistent with the government's economic policy. This requirement is also written into law, but the original draft did not mention the other legal provision stating that the Bank of Japan holds the authority to make monetary policy decisions.

The final version of the economic blueprint states: “To achieve robust economic growth, it is crucial to ensure that monetary policy is operated appropriately in order to realize stable price increases.”

The document also shows that, in the final version, the Japanese government will add a provision: the government will decide by “early August” whether to reduce the food consumption tax and by how much it will be reduced.

Kyodo News in Japan had previously reported on this plan.

The Japanese government has not yet commented on this matter.

According to current Japanese law, the Bank of Japan enjoys independence free from political interference, but is also required to maintain close coordination with the government's economic policies.

Based on this coordination clause, Sanae Takaichi's government and its pro-easing economic advisers have previously urged the Bank of Japan to remain cautious regarding further rate hikes.

The final version of the economic blueprint is expected to be approved by the Japanese Cabinet next Tuesday.