Japan’s new finance minister says government will not interfere in BoJ policy

Japan's new finance minister has signalled the Bank of Japan (BoJ) will not come under pressure from government to pursue lawmakers' monetary policy objectives.

Reuters, a newswire, reported Yoshihiko Noda, Japan's finance minister, as saying on Wednesday that the BoJ had taken "appropriate" and "flexible" steps on monetary policy.

"The Bank of Japan says it will keep easy monetary conditions and that stance is fine by me," Noda said, an indication the government would not pressure the central bank to take further easing steps.

Noda said the central bank's understanding of price stability as "inflation of above zero to 2%, with a median at 1%" was a "reasonable" position.

Noda's comments follow the appointment of prime minister Naoto Kan, a recent critic of the central bank, as a replacement to Yukio Hatoyama, who resigned last Wednesday after breaking a campaign promise to close an American military base on the island of Okinawa.

Kan's appointment had sparked fears that the government may put added pressure on the BoJ to pursue a more accommodative monetary policy stance.

Noda's comments will come as a relief to Japan's central bank after previous calls by the government urging the central bank to implement a more aggressive policy of monetary easing. However, Noda reiterated the government would continue to take the view that the central bank should achieve inflation of above 1%. "Prime Minister (Naoto) Kan's view is that we should achieve above 1%, I share his view but that is not to advocate inflation targeting," Noda said.

Kan and Masaaki Shirakawa, the governor of the BoJ, also differ on the adoption of inflation targets. The new prime minister is in favour of their adoption, but Shirakawa has slammed the single minded fixation on price growth targets deeming them limited in scope.

Win Thin, a senior currency strategist at Brown Brothers Harriman & Co, a bank, told CentralBanking.com Noda's comments were more of a personal view on the central bank. "It sounds like Noda did not want to push the central bank to explicitly incorporate inflation targeting into its policy," he said.

Andrew Smithers, the principal of Smithers and Co, a London-based consultancy said it was important that the government did not interfere in central bank policy which had been managing well its policy against deflation. "The key thing is not to do too much, not to pressurise the Bank of Japan who are managing things very well."

Smithers said it was evident there was still quite a lot of tension between the ministry of finance and the central bank.