Japan’s new government and the nation’s central bank have confirmed their commitment to a key 2013 pledge to cooperate on achieving 2% inflation, a move that will likely temper market speculation of an early stimulus exit.
Bank of Japan Gov. Haruhiko Kuroda reaffirmed the commitment in a meeting with government ministers Tuesday, the BOJ said in a release after Kuroda met with Finance Minister Shunichi Suzuki and Economy Minister Daishiro Yamagiwa.
The government and the central bank also agreed to keep in close contact and cooperation, in line with commitments made in a 2013 joint statement, which also laid out the country’s inflation target for the first time.
Prior to the meeting, there had been some market speculation that the government and the BOJ may review the joint statement and the 2% inflation goal, given that stubbornly weak prices have made the target elusive.
While Prime Minister Fumio Kishida has said he is inheriting the policies championed by former Prime Minister Shinzo Abe, the new leader has shown no intention of pushing the BOJ into additional easing to achieve its inflation goal. Abenomics focused on monetary easing, flexible fiscal policy and reforms with the aim of achieving stable growth.
In September, when former vaccine minister Taro Kono was seen as a favorite to become prime minister, there was growing market speculation that the statement might be revised due to Kono’s past comments suggesting the need for a cautious approach on monetary easing.
“The most important issue was to reaffirm the joint statement,” Economy Minister Daishiro Yamagiwa told reporters after the meeting. “The government and the BOJ must keep close contact with each other. The BOJ aims to achieve the 2% price stability target while we proceed with the economic growth strategy.”
The three discussed the economy and financial situation in a meeting that lasted less than an hour, but Suzuki said the yen was not on the agenda. The currency has weakened to around ¥114 in recent weeks, having touched an almost four-year trough of 114.695 on Oct. 20.
Tuesday’s meeting came after Kishida took over as the nation’s leader last month, a position strengthened by his party’s solid victory in general elections on Sunday.
It was the first meeting of its kind since January 2013, when the government and the central bank issued a joint statement laying out the 2% inflation target for the BOJ’s policy objective.
The joint statement issued in January 2013 also called on the government to press ahead with efforts to put tattered public finances in order.
Nearly nine years later, those objectives have yet to be achieved, as massive money printing has failed to spur inflation while stagnant growth and the COVID-19 pandemic have forced the government to keep its fiscal spigot wide open.
With core consumer inflation still close to zero, the central bank’s estimates show the 2% inflation target will not be met even in fiscal 2023, when Kuroda serves out his term.
The government’s aim of achieving a primary budget surplus, excluding new bond sales and debt servicing, also remains elusive.
The three-way meeting between the ministers and the central bank governor also indicates that Kishida is keen to reassure investors, policymakers and analysts that there will be no immediate shake-up of economic policy as the government focuses on shoring up a feeble pandemic recovery.
“They wanted to send a message from early on that the economy is Kishida’s focal point,” said Eiji Kitada, chief economist at Hamagin Research Institute. He described the meeting as a ceremony to reduce speculation and show that while the faces have changed, policy hasn’t.
“The government won’t say it but the BOJ’s easing is critical, as it keeps borrowing costs extremely low when issuing bonds,” Kitada said.
The BOJ’s yield curve control keeps long-term yield rates around zero, a useful outcome for a government that has the highest public debt load in the industrialized world. The government has pledged to compile a large economic package this month.
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