Japan Policy Draft Seen as Signaling Caution on BOJ Rate Hikes

Tokyo, June 30 (Jiji Press)–The Japanese government urged on Tuesday the Bank of Japan to work closely with it in a draft of its new Basic Policy on Economic and Fiscal Management and Reform. Some financial market participants see the move as reflecting the intent of the administration of Prime Minister Sanae Takaichi to keep the BOJ in check, given the administration’s cautious stance on further interest rate hikes. In the draft, the government called for the bank to closely coordinate with it in accordance with Article 4 of the BOJ law and a 2013 government-BOJ joint statement. The law’s Article 4 obliges the BOJ to conduct its monetary policy consistent with the government’s economic policy. The joint statement called for close policy coordination between the government and the BOJ to overcome deflation soon. Neither the law nor the joint statement had been mentioned in the government’s annual Basic Policy on Economic and Fiscal Management in the past. In the latest draft, the government also said that appropriate monetary policy management by the BOJ is “extremely crucial” to achieving a strong economy, a goal sought by the Takaichi administration. The draft also calls for price stability to be achieved in a way that prevents a return to deflation, suggesting that the government wants the BOJ to maintain an accommodative monetary stance. Earlier in June, the BOJ raised its policy interest rate from around 0.75 pct to around 1 pct, marking its fourth rate hike in about two years. Toru Suehiro, senior economist at Daiwa Securities Co., said that the draft “sends a message that the government is cautious about additional rate hikes” and “implies that monetary policy should not be pursued in a direction inconsistent with the government’s stance.” END [Copyright The Jiji Press, Ltd.]