For the first time in Japan's monetary policy history speculators are taking their bets on the seismic shift which has shaken the monetary policy system to the core and will wreak havoc on the money markets. The murmurs of modernization arise from speculations over a new deposit rule and a possible fine-tuning of the Bank of Japan's (BOJ) monetary policy.

Yields of the Japanese treasury bills have been trapped by the crossfire between speculations. Rare was the occasion to witness the one-year bill unexpectedly stand out for a long break, closing at nearly a decade high, aided by the short-sellers pressure. The catalyst? As BOJ might exchange the “Tiering program of reverse repurchase agreement contracts” for a positive overnight rate, the market expects it. Such a move could, in fact, encourage financial institutions to let go of the Treasury paper with a maturity of less than one year to keep money with the BOJ.

BOJ's present Yield Curve Control (YCC) policy allows short-term rate risk to hover conveniently around -0. While White is forecasting a 1% no change, the underlying sentiment is that there will be a change to the flat overnight rates or more slightly positive. Thus, this trend may signal the persistence of negative interest rates, which may bring about the movement of money from the short-term money market debt to the refugee accounts intending to lock for long-term yield.

On the other hand, the very recent speeches of BOJ Governor Kazuo Ueda have put new uncertainty into the scenario. While giving much credence to the fact that the economy is improving and it almost begun to reach earlier growth rates, the governor warned against excessive optimism and emphasized its consumption weakness as the biggest issue here. Another example of a risk-off market was triggered by Kuroda's understated and slow speech, which led traders to ease back on the belief of an immediate policy shift, possibly helping Japanese stock indexes to regain the lost grounds and the yen to decrease from it's recent highs.

Notwithstanding the conspiracy about the market and the financial disruptions, however, some reports have indicated that a cop-out signal might be getting louder. The media sources have been reporting on possibilities of the policy shift as early as next week signaled by the data showing that the inflation is undermined and the economy is resilient. The event of the wage increases hangs and this makes the BOJ to start thinking sometimes when the right time to tight the policy would be.

An agreement on wages has already been reached between the big companies and unions of Japan, so the probability for an inflation-busting increase in wages might be in work, and the influence of the BOJ is likely to be swayed. In the scenario where markets are sensitive and each person is constantly waiting for something to happen, Japanese monetary authorities have no option but to face a monetary policy crossroads as basically every decision of theirs is associated with what economic outcome it would spark. The only certainty? With so many intricacies and misunderstandings lying ahead, the road ahead seems to be leading us to the unknown.