Bank of Japan Gov. Masaaki Shirakawa pushed back Tuesday against pressure on the central bank, criticizing the unlimited easing advocated by opposition leader Shinzo Abe and urging respect for the BOJ’s independence.
“I seek respect for the BOJ’s independence as it’s doing its utmost to conduct appropriate monetary policy,” Shirakawa said.
Without naming Abe, Shirakawa said that unlimited money-printing could worsen the national debt and that a 3 percent inflation goal, also suggested by the head of the Liberal Democratic Party, would be unrealistic.
Also on Tuesday, Cabinet ministers criticized recent remarks by Abe, saying direct financing of the government by the BOJ could destabilize the economy and would threaten the bank’s independence.
“That would be off limits,” Finance Minister Koriki Jojima told reporters after Abe, head of the Liberal Democratic Party, said the BOJ should purchase government bonds to finance public works projects to boost the flagging economy.
“It would weaken fiscal discipline, trigger a surge in interest rates and cause excessive inflationary pressure,” Jojima said.
The BOJ is allowed by law to purchase government debt only from the secondary market at its discretion — not directly from the government.
In speeches ahead of the Dec. 16 general election, Abe, a former prime minister, has said the central bank should agree with the government to set an inflation target of 2 to 3 percent and implement an “unlimited” liquidity provision until achieving the target, which would be higher than the BOJ’s current goal of 1 percent.
If the government decides on the specific monetary policy measures the BOJ should take, it would be “inappropriate in terms of (respecting) the central bank’s independence,” Jojima said.
Economic and fiscal policy minister Seiji Maehara echoed this view, saying Abe’s remarks indicate a willingness to allow “politics to intervene in monetary policy.”
“We must ensure the BOJ’s independence,” Maehara said.
Maehara, who had been widely seen as pressing the BOJ to do more in fighting chronic deflation, has apparently eased his position since the BOJ and the government last month issued a rare joint statement clarifying separate policy steps they must take to beat deflation.
With financial markets reacting to Abe’s proposals — the yen has dropped against other major currencies and share prices have advanced — Maehara warned that speculative bets have appeared. “I hope the real economy will not be distorted,” he said.
The Bank of Japan held off from monetary easing Tuesday after expanding asset purchases in September and October, switching the focus to a December meeting where more measures are forecast to shore up the shrinking economy.
The asset fund stayed at ¥66 trillion and a credit-lending facility was unchanged at ¥25 trillion, the central bank said in a statement issued after its two-day meeting. All 22 economists surveyed by Bloomberg News had forecast no change.
Opposition leader Shinzo Abe, the leading contender to become prime minister after the Dec. 16 election, has called for unlimited easing and an increase in the BOJ’s inflation goal to as much as 3 percent from 1 percent.
His comments last week triggered the biggest two-day decline in the yen against the dollar in a year as investors speculated that more aggressive monetary loosening is looming.
“The BOJ would likely come under increasing pressure,” Chotaro Morita, chief strategist for fixed income at Barclays PLC in Tokyo, said before Tuesday’s decision. “The December monetary policy meeting is scheduled to take place after the election, suggesting pressure for additional easing could exert an influence at an early stage.”
The BOJ kept its key interest rate unchanged between zero and 0.1 percent and monthly purchases of government bonds at ¥1.8 trillion, Tuesday’s statement showed.
Attention now shifts to a BOJ policy meeting scheduled three days after the election, with 16 economists forecasting easing. The economy is heading for a technical recession as analysts forecast a 0.4 percent annualized contraction this quarter after a 3.5 percent decline in the three months through September.
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