PM Takaichi Urged BOJ Chief to Buy JGBs at May Meeting

Tokyo, Aug. 4 (Jiji Press)–Prime Minister Sanae Takaichi urged Bank of Japan Governor Kazuo Ueda at their meeting in May to buy Japanese government bonds if necessary to curb rising long-term interest rates, informed sources told Jiji Press Tuesday. It is unusual for the prime minister to mention a specific monetary policy tool. The reported request could spark a debate over the central bank’s independence. According to the sources, Takaichi told Ueda during their 20-minute meeting at the prime minister’s office on May 22 that she would like the BOJ to understand her cabinet’s policy agenda and conduct appropriate monetary policy accordingly. At a time when the BOJ is reducing its JGB purchases, the prime minister sought an appropriate response to ensure market stability, asking the central bank to buy JGBs if necessary. Ueda replied that it is necessary to consider market reactions and added that the central bank would respond if circumstances warranted doing so, the sources said. A government source said that Takaichi’s request reflected her hope to avoid a rise in long-term interest rates that could result from a possible increase in government bond issuance to finance crisis preparedness investments and higher defense spending under her “responsible and proactive” fiscal policy. About three weeks after the Takaichi-Ueda meeting, the BOJ decided on June 16 to raise its policy interest rate to 1 pct and stop reducing its JGB purchases in April 2027. The central bank also maintained its commitment to take action against any spike in bond yields, such as increasing bond purchases flexibly. The BOJ has explained that the June decision was not related to Ueda’s meeting with Takaichi. However, a government official said, “The prime minister’s office appeared to view the decision as a trade-off under which the government accepted the rate hike in exchange for the BOJ revising its bond-buying plan.” “If long-term bond yields climb further, the prime minister could seek larger bond purchases,” the official added. Since ending its massive monetary easing program in March 2024, the BOJ has repeatedly said it would buy government bonds flexibly if yields surged. Still, it has not done so during any period of rising long-term yields. If the BOJ resumes expanding its bond holdings in line with the government’s fiscal needs, financial markets could interpret the move as “fiscal financing,” in which a central bank effectively underwrites government deficits. END [Copyright The Jiji Press, Ltd.]