Hatoyama, Kan Escalate Pressure on BOJ to Combat Deflation
Japanese Prime Minister Yukio Hatoyama said the central bank should act “appropriately” to fight deflation, escalating pressure on Governor Masaaki Shirakawa and his colleagues to support the economic recovery.
“I sincerely hope the Bank of Japan will try to implement monetary policy appropriately,” Hatoyama said in parliament in Tokyo today. Finance Minister Naoto Kan told the same committee that the central bank should “make more efforts” to lift Japan out of deflation.
The comments are the latest in a growing conflict between the government and the Bank of Japan over how to spur prices, after Shirakawa last week shrugged off Kan’s calls for an inflation target and urged him to tackle the fiscal deficit. Shirakawa, speaking at the same hearing today, said the central bank will continue to provide “ample liquidity” to beat deflation.
“The central bank realizes it’s extremely important to overcome deflation and achieve sustainable economic growth,” Shirakawa said.
When asked by a ruling party legislator whether the central bank intends to increase its purchases of government bonds, Shirakawa said it buys 21.6 trillion yen ($240 billion) of the securities annually to “provide abundant funds in a stable manner through its money market operations.”
Investor ‘Trust’
Shirakawa said on Feb. 18 that it’s important to “gain the trust of financial markets by showing a path for fiscal consolidation.” Those remarks reflected his concern that increasing the bond purchases might give investors the impression that the bank is willing to fund government spending.
Japan has the world’s largest public debt, limiting the government’s ability to stimulate demand and fuel price increases. Hatoyama wants to sustain a recovery as his approval rating slumps ahead of upper-house elections in July.
The central bank also has limited options. With the benchmark interest rate already at 0.l percent, it unveiled a credit facility for commercial banks in December.
“We’d certainly like the Bank of Japan to make more efforts” to stop price declines and prop up the economy, Kan said today. Stamping out deflation is “a shared goal of the government and the central bank,” he said.
Kan said the government will present a plan to contain the public debt in June “to give relief to market participants amid concern about long-term interest rates.”
It’s “extremely difficult” to contain the public debt without beating deflation, the finance minister added.
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