Hatoyama’s Cabinet Presses Bank of Japan to Fight Deflation
Japanese government ministers increased pressure on the central bank to tackle falling prices in the world’s second-largest economy.
“My understanding is that Japan is in a deflationary state,” Deputy Prime Minister Naoto Kan told reporters today in Tokyo. The government will tell the central bank that “monetary policy plays a significant role” in fighting deflation, he said.
Kan’s comments, echoed by other ministers after a Cabinet meeting today, underscore the government’s growing rift with the central bank, which is concluding a two-day monetary policy meeting today. Finance Minister Hirohisa Fujii, who said today deflation is a critical factor when setting economic policy, and Prime Minister Yukio Hatoyama have said the central bank is too optimistic about the outlook for the economy.
“There’s a sense of crisis” regarding deflation, Fujii said today, calling on the central bank to respond to the threat while adding that rates are already “very low” limiting room for further monetary policy action.
The world’s second-largest economy grew an annualized 4.8 percent last quarter, the fastest pace in more than two years, while a gauge of prices excluding imports fell the most in 51 years, a Cabinet Office report showed this week cash advance in one hour. Consumer prices excluding fresh food dropped for a seventh month in September and the central bank said last month it expects them to keep sliding through fiscal 2011.
Independence
The central bank, whose independence is guaranteed by law, is accustomed to such comments by government officials. Lawmakers from the previous ruling Liberal Democratic Party would call on the policy board to keep rates low, with some politicians such as Hideyuki Aizawa going as far as suggesting the governor’s job was on the line if he didn’t yield to government requests.
Kan, who is also the nation’s economic and fiscal policy minister, didn’t elaborate on what steps the Bank of Japan should take. Economists expect central bank Governor Masaaki Shirakawa and his policy board to keep interest rates at 0.1 percent today.
Financial Services Minister Shizuka Kamei said the bank should be more aware of aligning its policies with the government when prices are falling.