Like-minded lawmakers across party lines have kicked off discussions toward amending the Bank of Japan Law to effectively lessen the central bank’s independence and hold it more accountable for its monetary policy.
“The 1998 BOJ Law gave the bank too much independence and freedom, which caused prolonged deflation,” said Your Party leader Yoshimi Watanabe, who launched the nonpartisan group Friday with Kozo Yamamoto of the ruling Liberal Democratic Party, Sakihito Ozawa of Nippon Ishin no Kai (Japan Restoration Party) and Yoichi Masuzoe, head of Shinto Kaikaku (New Renaissance Party).
The group aims to rewrite the law to make the BOJ more accountable for its policies. Members of the three parties are pushing for change, and both the LDP and Your Party have drafted revisions calling for employment stability to be a BOJ policy goal, as well as for an accord between the government and the bank.
Your Party wants both Diet chambers to have the power to remove the BOJ governor if the bank fails to deliver on the expected results. Under the current BOJ Law, the Lower and Upper houses both have to approve the governor’s nomination but they effectively can’t dismiss whoever is installed.
“(But) senior LDP lawmakers will not agree to the proposal if the amendment enables the Diet to sack the BOJ governor,” said the LDP’s Yamamoto, referring to those in the ruling party who revised it in 1998.
Prime Minister Shinzo Abe’s LDP-led administration pushed the central bank to agree to set a 2 percent inflation target to pursue a more aggressive monetary policy. Abe backpedaled a little after he was accused of threatening the central bank’s independence from the government.
Yet lawmakers nevertheless want to hold the BOJ more accountable.
On Friday, Abe reiterated his position that revising the BOJ Law may be an option if the bank fails to deliver results during budget committee sessions.
“I would refrain from mentioning how the BOJ should achieve its goals, but it really depends on the new governor’s capability and direction,” Abe said, responding to a question by Kenji Eda of Your Party about the possibility of the law being amended.
The BOJ Law was revised in 1998 in an attempt to ensure the central bank’s independence and transparency by giving both Diet chambers the power to approve the appointment of its governor and two deputy governors. Under the old BOJ Law, the Cabinet could appoint the governor and one deputy governor, and the finance minister had the authority to replace them.
Although Diet approval is now required for these appointments, the finance minister’s power to replace the bank’s top executives often compromises their independence and makes them sensitive to the government’s position on monetary policy decisions.