Japan’s yen traded at 115 to the U.S. dollar in January 2022. By mid-October, the yen had shed 23.3% of its value. A Financial Times headline that month identified what everyone decided was the culprit: “Fumio Kishida backs Bank of Japan’s ultra-loose policy despite yen plunge.” Prime Minister Kishida was supporting the Bank of Japan’s policy of suppressing long-term yields on government bonds to interest rates near zero. This is the bank’s much-advertised, unorthodox “yield-curve control” policy, or YCC, and it put Japan at the center of a great monetary-policy fallacy.

That policy was altered on Dec. 20, when the bank announced it was widening the trading band for government bonds. This tweak provoked reaction around the world. Was Japan, the world’s largest creditor, going to abandon its ultra-loose monetary policy and take the lid off interest rates?