Japan Trusts BOJ on Monetary Policy, Economy Minister States

By Leika Kihara

TOKYO – Japan’s new economy minister, Ryosei Akazawa, stated on Tuesday that the government has confidence in the central bank’s timing regarding future interest rate hikes, despite uncertainty surrounding the new political leadership’s inclination toward maintaining loose monetary policies.

Bank of Japan (BOJ) Governor Kazuo Ueda has indicated that the central bank will adjust its monetary support based on economic conditions and price trends, Akazawa noted. He emphasized that the BOJ is prepared to take its time in assessing market developments, as real interest rates remain significantly negative.

"Specific decisions on monetary policy fall under the jurisdiction of the BOJ," Akazawa remarked during a group interview. He expressed trust in the BOJ’s ability to adjust monetary support in line with economic improvements and pricing trends, rejecting the notion that the new administration would oppose the BOJ’s normalization efforts.

Last week, newly appointed Premier Shigeru Ishiba surprised markets by suggesting that the economy is not prepared for additional rate hikes, a notable reversal from his earlier support for unwinding extensive monetary stimulus from the BOJ. This unexpected statement led to a decrease in the yen’s value against the dollar and raised fresh concerns about the BOJ’s aggressiveness in increasing rates.

Akazawa identified the government’s primary goal as strengthening the economy to avoid a return to deflation. He suggested that Japan is on the brink of experiencing inflation alongside substantial wage growth, although current inflation-adjusted real wage growth remains stagnant.

When questioned whether the BOJ should wait for the government to officially declare an end to deflation before raising rates or if moderate rate hikes could proceed in tandem with economic recovery, Akazawa affirmed the latter option.

In a meeting last week, Akazawa and Finance Minister Katsunobu Kato reiterated an agreement established in 2013, which focuses on revitalizing economic growth and achieving the BOJ’s inflation target of 2%. The BOJ ended negative interest rates in March and raised its short-term rate target to 0.25% in July, citing an optimistic outlook for consistently meeting the inflation goal.