Members of the Democratic Party of Japan said they will support the Bank of Japan’s independence if they win the election and govern for the first time.
“We should respect the central bank’s independence on monetary policy,” Tsutomu Okubo, a director of the Upper House Financial Committee, said last month. Masaharu Nakagawa, the DPJ shadow finance minister, said last week the party wouldn’t exert pressure on the BOJ keep rates low.
BOJ policymakers have come under pressure from Liberal Democratic Party politicians when raising borrowing costs: former BOJ Gov. Masaru Hayami was told his job may be on the line before ending the bank’s zero-interest-rate policy in August 2000.
“A politician shouldn’t say the BOJ needs to raise or lower interest rates,” said Okubo, 48, adding he sees no need for the central bank to take additional policy steps since it has lowered the key overnight lending rate to 0.1 percent and bought corporate debt. He indicated it may be too early to unwind those policy measures set in place to spur growth.
“The timing of the exit should be considered carefully because the global economy hasn’t recovered yet,” said Okubo, who is a former banker at Morgan Stanley in Tokyo. “There’s a possibility that the global economy will experience a double-dip recession. We can’t underestimate the possibility.”
“In the beginning, the DPJ will probably be more respectful of the BOJ’s independence,” said Masaaki Kanno, chief economist at JPMorgan Chase & Co. in Tokyo and a former BOJ official. “But it’s questionable whether that honeymoon period will continue if the party has trouble governing and is held accountable.”
The BOJ gained independence from the government in 1998. That didn’t stop LDP lawmaker Hideyuki Aizawa from suggesting Hayami would be dismissed when the BOJ raised rates in 2000. The LDP’s Hidenao Nakagawa said in November 2005 that the government might revise the law that guarantees the BOJ’s autonomy if the bank undid its quantitative easing policy too quickly. The threats didn’t affect policy decisions.
The DPJ last year blocked the appointment of Toshiro Muto, a former top bureaucrat at the Finance Ministry, as BOJ governor and prevented others from joining the board, saying their backgrounds as government officials compromised the central bank’s independence.
Okubo said officials shouldn’t hold governor or deputy governor posts at the BOJ.
Okubo also said enhancing trust in the dollar and Treasuries is beneficial for Japan and the country shouldn’t change its reserve allocations for the time being.
In the long term, Japan should seek an efficient way to boost returns by, for instance, shifting some of the foreign reserves to government-owned agencies such as the Development Bank of Japan by using currency swaps, Okubo said.
He also said International Monetary Fund bonds may be attractive to boost returns on foreign reserves if the securities offer higher yields than those on U.S. Treasuries.
Okubo, the DPJ’s shadow vice minister for banking regulation, also said he agrees with Nakagawa’s call for asking the U.S. to sell debt denominated in yen, or samurai bonds, as a way to diversify reserves and promote the globalization of the Japanese currency. Okubo recommended asking the U.S. to issue 30-year samurai bonds.
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