The Japanese government has revised the wording concerning monetary policy in the latest draft of its annual Basic Policy on Economic and Fiscal Management, commonly known as the "Honebuto" (big-boned) policy. Market analysts interpret this move as an effort to mitigate external speculation that the government is pressuring the central bank to slow the pace of interest rate hikes and to alleviate concerns about government interference in the Bank of Japan's policy independence.

According to disclosures, the newest draft version includes an addition regarding inflation, calling for the implementation of "appropriate monetary policy that contributes to achieving stable price increases." In contrast, an earlier draft version only mentioned that the "appropriate conduct of monetary policy is extremely important" without elaborating on price factors. Some analysts point out that as the previous wording was interpreted by markets as hinting that the Bank of Japan would pause further rate hikes, the latest revised version retains the original phrases "appropriate policy" and "extremely important." However, by introducing the goal of price stability, it creates policy space for the Bank of Japan to subsequently adjust interest rates and curb inflation.

Commenting on this, Ataru Okumura, chief rates strategist at SMBC Nikko Securities, analyzed that the market had widely believed the Bank of Japan's rate hike process was constrained by the government's pursuit of robust economic growth objectives. The current subtle wording adjustment is unlikely to completely reverse these entrenched market expectations. Previously, Japan's Asahi Shimbun newspaper, citing anonymous government officials, reported that the addition of language concerning price stability in the draft was indeed intended to prevent market misunderstandings. An official from Japan's Cabinet Office responded that the primary purpose of adjusting the draft wording was to ensure consistency in the document's internal phrasing.

Influenced by government policy direction and the large-scale investment plan proposed by Prime Minister Takaichi Sanae, Tokyo's financial markets have experienced ongoing volatility recently. In the foreign exchange market, the yen continues to hover at low levels around 162.30 against the US dollar, approaching the 40-year low touched previously. Long-term government bond yields also continued to climb on Wednesday. This reflects that market concerns have not dissipated regarding Prime Minister Takaichi's dovish monetary stance and the potential for large-scale fiscal spending to worsen Japan's fiscal health.

It is reported that the final version of this annual Basic Policy on Economic and Fiscal Management is scheduled for official release later this month.