By Leika Kihara
TOKYO (Reuters) – Japan’s new economy minister, Ryosei Akazawa, said on Tuesday the government has trust in the central bank’s decision on how soon to raise interest rates again, amid uncertainty over the new political leadership’s preference for loose monetary policy.
BOJ Governor Kazuo Ueda has said the central bank will adjust the degree of monetary support if the economy and prices move in line with its forecast, Akazawa said.
The governor also said the BOJ can afford to spend time scrutinising market developments, and that real interest rates remain deeply in negative territory, Akazawa said.
“Specific decisions on monetary policy fall under the jurisdiction of the BOJ,” he told a group interview.
“We trust the BOJ’s decision on how to adjust the degree of monetary support, in accordance with economic and price developments,” Akazawa told a group interview, brushing aside the view the new administration would push back against the BOJ’s efforts to normalise monetary policy.
New Japanese premier Shigeru Ishiba stunned markets last week when he said the economy was not ready for further rate hikes, an apparent about-face from his previous support for the BOJ unwinding decades of extreme monetary stimulus.
The surprisingly blunt remarks pushed the yen lower against the dollar and cast fresh doubts over how aggressive the BOJ would be in raising rates.
Akazawa said the government’s top priority would be to strengthen the economy, enough so that it does not revert to deflation.
“Japan is on the cusp of experiencing a rise in inflation accompanied by solid wage gains, though we’re not there yet” with inflation-adjusted real wage growth still flat, he said.
When asked whether the BOJ should not raise rates until the government declares a full end to deflation, or whether it can hike rates moderately as long as the economy keeps recovering, Akazawa said: “It’s the latter.”
Akazawa and Finance Minister Katsunobu Kato met with Ueda last week, where they reaffirmed an agreement made in 2013 that commits the government and BOJ to focus on reflating growth and achieving the central bank’s 2% inflation target.
The BOJ ended negative interest rates in March and raised its short-term rate target to 0.25% in July on the view Japan was on track to durably meet the bank’s 2% inflation target.