© Reuters. Japanese Prime Minister Fumio Kishida speaks during a news conference at the prime minister’s office in Tokyo, Japan, 13 December 2023. FRANCK ROBICHON/Pool via REUTERS
By Leika Kihara
TOKYO (Reuters) – Japanese Prime Minister Fumio Kishida on Wednesday urged the central bank to take into account the government’s priorities, such as pulling the economy permanently out of deflation, in making monetary policy decisions.
The remark comes ahead of the Bank of Japan’s policy meeting next week, where the central bank is widely expected to make no major changes to its ultra-loose monetary settings.
Kishida said the government is undertaking various steps to eliminate companies’ long-held practice of prioritising cost cuts over innovation, and achieve a cycle in which price rises are accompanied by sustained wage increases.
“Specific monetary policy decisions must be made by the Bank of Japan. But in guiding policy, I hope the central bank takes into account the government’s policy goals,” he told a news conference when asked about market expectations the BOJ could soon end ultra-low interest rates.
Kishida also said the government and the BOJ agree on the need to put Japan on a sustained growth path, and see inflation stably hit the central bank’s 2% target.
With inflation exceeding its 2% target for well over a year, the BOJ has been laying the groundwork to phase out its massive stimulus such as by relaxing its grip on bond yields.
But BOJ Governor Kazuo Ueda has stressed the need to keep ultra-loose policy until inflation is driven more by domestic demand and higher wages, rather than cost-push pressures.
More than 80% of economists polled by Reuters in November expected the BOJ to end its negative rate policy next year with half of them predicting April as the most likely time. Some see the chance of a policy shift in January.
In an effort to reflate growth and sustainably achieve its price target, the BOJ guides short-term rates at -0.1% and sets a loose cap around 1% for the 10-year government bond yield.