Bank of Japan Gov. Masaaki Shirakawa has sounded a positive note about the central bank’s policy coordination with the government in helping the country overcome deflation.
“Under the zero interest rate environment, it is necessary for the government and the BOJ to join forces while clearly recognizing the role each other should play” in beating deflation, Shirakawa said in an interview.
“The BOJ wants to push ahead with monetary easing by utilizing the remaining room for interest rate declines, and we are actually doing so,” he said.
Keeping in mind that the government might conclude a policy accord with the BOJ, Prime Minister Shinzo Abe, who was inaugurated last week, has instructed Deputy Prime Minister Taro Aso, who also serves as finance minister, to work out a framework to strengthen cooperation between the two sides.
The BOJ has kept its target for the unsecured overnight call rate, a key short-term interbank rate, at a range from zero to 0.1 percent, and decided at its Dec. 19-20 policy-setting meeting to expand its asset purchase and special loan program to ¥101 trillion from ¥91 trillion and set details of its new facility aimed at encouraging commercial banks to increase lending.
Shirakawa said the BOJ will thoroughly study a possible policy accord with the government and the advisability of introducing an inflation target toward the bank’s next policymaking meeting on Jan. 21-22.
Pointing out that there is “no magic wand” in beating deflation, however, Shirakawa said, “It is important to fully discuss the role the government should perform” as well as monetary easing. He therefore stressed the need for deregulation and other measures to help spur growth.
Shirakawa said he does not think that holding talks between the government and the BOJ on their policy coordination will undermine the central bank’s independence from the government.
The BOJ currently aims for year-on-year growth of 1 percent in the nation’s core consumer price index. If the economy’s growth potential increases, there could be a rise in a price goal, Shirakawa said, adding, “Price stability is closely related to the economy’s sustainable growth, and the government, too, has a great responsibility.”
Citing a survey showing that more than 80 percent of Japanese think rises in prices are not desirable, Shirakawa said, “Many people hope to see the economy, including wages, employment and corporate profits, improve in a balanced manner.” He thus signaled caution against those who attach importance only to price increases in the fight against deflation.
Meanwhile, Shirakawa reiterated that the BOJ “will continue to stick to its stance” of not taking policy steps designed to help make up for the fiscal deficit.
He also said, “The BOJ cannot buy Japanese government bonds unlimitedly,” warning against views in favor of the bank taking too bold a monetary easing policy.
Maintaining the credibility in a country’s currency is the very basis of economic stability, Shirakawa said.