Japan's Trust in BOJ Decisions on Interest Rates

By Leika Kihara

TOKYO (Reuters) – Japan's new economy minister, Ryosei Akazawa, stated on Tuesday that the government trusts the central bank's decision-making regarding future interest rate hikes, despite uncertainties surrounding the new political leadership's stance on loose monetary policy.

BOJ Governor Kazuo Ueda indicated that the central bank would amend its monetary support based on economic performance and price forecasts, according to Akazawa. He highlighted that real interest rates are substantially negative.

"Specific decisions on monetary policy fall under the jurisdiction of the BOJ," he stated in a group interview. Akazawa reaffirmed confidence in the BOJ's ability to adjust its monetary support in response to economic developments, dismissing concerns that the new administration would counter the BOJ's normalization efforts.

The recent comments from the newly appointed premier, Shigeru Ishiba, surprised markets as he suggested that the economy isn't prepared for additional rate increases, contrasting his earlier support for unwinding extreme monetary stimulus.

These remarks led to a drop in the yen against the dollar and raised questions about the BOJ's potential aggressiveness in rate adjustments.

Akazawa emphasized that the government's main goal is to strengthen the economy to prevent a return to deflation. He noted that Japan is on the verge of experiencing inflation growth alongside improved wage gains, although real wage growth remains stagnant.

When questioned about the timing for rate hikes relative to deflation, he advocated for gradual increases as long as the economy shows signs of recovery. Recently, Akazawa and Finance Minister Katsunobu Kato met with Ueda, reaffirming a 2013 agreement focused on promoting growth and achieving the BOJ's 2% inflation target.

The BOJ ended negative interest rates in March and increased its short-term rate target to 0.25% in July, under the assumption that Japan is on track to meet its inflation goals sustainably.