You may not have heard, but something interesting happened in Japan yesterday. For the first time in almost a decade, the economic and fiscal policy minister of Japan attended the Bank of Japan’s rate statement!
Japan hasn’t had an economic and fiscal policy minister attend the rate statement since 2003, back when Heizo Takenaka was holding the position. But newly appointed minister Seiji Maehara broke the dry spell when he showed up at the BOJ’s big event yesterday.
As the economic minister, Seiji Maehara is allowed to attend BOJ meetings and say what’s on his mind, but he’s not allowed to vote on central bank decisions.
Take note, Maehara wasn’t at the rate statement as a mere spectator. Oh, no – he was there on a mission. Maehara, who has never been shy about his aggressive stance on monetary expansion, called on the BOJ to loosen up and ease monetary policy even further.
Instead of buying Japanese government bonds, corporate debt, and funds investing in stocks and property, he recommends buying FOREIGN government bonds as it would also help tame the yen in the markets.
Maehara wants the central bank to do all it can to pull the country out of its deflationary rut. Keep in mind that the national core CPI has recorded falling prices for the past four months, most recently a 0.3% decline in September.
So how did the BOJ respond? By voting unanimously to make no changes to interest rates and not bumping up its asset purchases! Hah!
But don’t get me wrong, Maehara’s words didn’t completely fall on deaf ears. The BOJ promised to keep easing policy by steadily bumping up its stimulus program. Then again, even without pressure from the government, the central bank has plenty of reasons to keep monetary policy easy.
Japan has been struggling with waning demand for its goods as many major economies have been going through tough times of their own. And the anti-Japan protests and economic slowdown in China haven’t been helping Japan’s export industry either.
Overall, Japanese central bankers think that the economy is already starting to “level off.” In other words, we’ve got a potential flatliner on our hands, boys!
With Maehara vowing to continue attending the central bank’s meetings in the future, I can’t help but feel that the pressure for the BOJ to keep easing monetary policy has increased drastically. They practically have a backseat driver telling them what to do.
But of course, at the end of the day, the BOJ is the one with its hands on the wheel. That being said, a few questions come to mind.
In what direction will the BOJ take monetary policy? Will it listen to its backseat driver and buy foreign government bonds? More importantly, with the outlook for Japan’s monetary policy leaning heavily towards the dovish end of the spectrum, can we expect the Japanese yen to weaken in the long run?