Japan has confidence in the BOJ on monetary policy, the economy minister said, according to Reuters

By Leica Kihara

TOKYO (Reuters) – Japan’s new economy minister Ryosei Akazawa said on Tuesday the government had confidence in the central bank’s decision on how soon to raise interest rates again, amid uncertainty over the new political leadership’s preference for monetary policy relaxed.

BOJ Governor Kazuo Ueda said the central bank will adjust the degree of monetary support if the economy and prices move in line with his forecast, Akazawa said.

The governor also said the BOJ can afford to spend time analyzing market developments and that real interest rates remain deep in negative territory, Akazawa said.

“Specific monetary policy decisions fall under the jurisdiction of the BOJ,” he said in a group interview.

“We have confidence in the BOJ’s decision on how to adjust the degree of monetary support in line with economic and price developments,” Akazawa said in a group interview, dispelling the view that the new administration will reject the BOJ’s efforts to normalize monetary policy.

New Japanese Prime Minister Shigeru Ishiba stunned markets last week when he said the economy was not ready for further interest rate hikes, an apparent shift from his previous support for the BOJ, which has run decades of extreme monetary stimulus.

The surprisingly dovish comments pushed the yen lower against the dollar and raised fresh doubts about how aggressive the BOJ would be in raising interest rates.

Akazawa said the government’s top priority would be to strengthen the economy enough to keep it from falling back into deflation.

“Japan is on the cusp of an increase in inflation accompanied by solid wage gains, although we are not there yet,” with inflation-adjusted real wage growth still steady, he said.

Asked whether the BOJ should not raise rates until the government declares a complete end to deflation, or whether it can raise interest rates moderately as long as the economy continues to recover, Akazawa said: “It’s the latter.”

Akazawa and Finance Minister Katsunobu Kato met with Ueda last week, where they reaffirmed a 2013 deal that forces the government and the BOJ to focus on reviving growth and hitting the central bank’s 2 percent inflation target.

The BOJ ended negative interest rates in March and raised its short-term interest rate target to 0.25 percent in July, believing Japan was on track to sustainably meet the bank’s 2 percent inflation target.