With the war in Iraq clouding economic prospects, the immediate task for the new governor of the Bank of Japan, Mr. Toshihiko Fukui, is to shore up sagging confidence in the nation's economy, particularly the financial system. In this respect, he has made a good start. Several days after he took office on March 20, the BOJ decided to pump an additional amount of money into the banking system and to expand its purchase of stocks held by banks.
The central bank's willingness to "take every step to ensure financial market stability" is welcome. The bank is often associated with an image of passive decency, the implication being that it is not disposed to bold action. Now is the time to project a more positive image. Of course, there are limits to what it can do. Monetary policy will go over the top if demands from political and business circles are easily accepted.
It is important for the central bank to remain in close touch with the government, but it must do so in ways that do not hurt its autonomy. The two sides do not need to fight or blame each other, as they did in the past. The challenge for the new governor is to promote dialogue with the Finance Ministry and the Financial Services Agency so that monetary and fiscal policy can be conducted in an integrated manner.