“Bank of Japan May Face Difficulties Coordinating With Government”
Japanese Prime Minister Takaichi Sanae expressed reluctance over an additional hike in the benchmark interest rate during a meeting with Bank of Japan Governor Ueda Kazuo, head of the country’s central bank, on the 16th, the Mainichi Shimbun reported on the 24th.
The specific remarks made by Prime Minister Takaichi during the meeting have not been fully disclosed, but she is said to have shown a more negative attitude toward raising interest rates than when she met Governor Ueda in November last year. Although Ueda told reporters immediately after his meeting with Prime Minister Takaichi that he had not received any special requests regarding monetary policy, it appears that in reality Prime Minister Takaichi sought to put some brakes on the course toward rate hikes.
Up to now, the Bank of Japan has maintained that additional interest rate hikes are necessary in order to achieve “monetary policy normalization” and to respond to the depreciation of the yen. However, Prime Minister Takaichi has pledged what she calls “responsible, proactive fiscal spending,” effectively signaling a large-scale fiscal expansion, and is therefore seen as opposing the Bank of Japan’s rate hikes.
The Mainichi predicted that relations between Prime Minister Takaichi, whose power base has been strengthened by the ruling Liberal Democratic Party’s landslide victory in the House of Representatives (general) election, and the Bank of Japan may not be smooth going forward.
At its Monetary Policy Meeting in December last year, the Bank of Japan raised its short-term policy rate by 0.25 percentage point, from “around 0.5%” to “around 0.75%.” While the dominant view in financial markets had been that the Bank of Japan would raise rates again in the first half of this year, the Mainichi reported that coordination with the government could face difficulties.
Meanwhile, immediately after reports emerged that Prime Minister Takaichi had expressed reluctance about raising interest rates, the yen weakened in the foreign exchange market, with the yen-dollar exchange rate climbing from 155 yen to as high as 156.25 yen per dollar.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
