WRAPUP 2-Japan finmin wary of any formal policy accord with BOJ

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* Kan: Govt, BOJ working together to beat deflation

* BOJ’s Suda: will stick to easy monetary policy

* Manufacturers’ capex growing slowly due to external

* Services sector cautious due to domestic consumption

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By Hideyuki Sano

TOKYO, March 10 (BestGrowthStock) – Japanese Finance Minister Naoto
Kan shot down the idea of a formal policy pact with the Bank of
Japan as the government aims to strike a delicate balance
between pushing the central bank to ease policy further and
respecting its independence.

The idea of a formal policy accord has been floated in the
past by critics of the central bank who feel it could be doing
more to combat grinding deflation that has plagued the world’s
second-largest economy for most of the past 15 years.

But Kan, who has also been calling on the BOJ to take
bolder action, said he saw no immediate need for such a pact,
echoing the view held by a majority of policy makers and
politicians wary of threatening the central bank’s

“I gather advocates of such a policy want an arrangement
where the government increases the deficits and the BOJ
cooperates by buying more government debt,” said Izuru Kato,
chief economist at Totan Research.

“They must be thinking central bank independence allows the
BOJ to be too hesitant about buying government bonds and
therefore they should strip the BOJ of its independence,” Kato

Kan steered clear of saying exactly what he wants the
central bank to do at its policy meeting next week, where
further easing is likely to be discussed. [ID:nTOE6230A7]

BOJ board member Miyako Suda, seen as hawkish on monetary
policy, said on Wednesday that the central bank will maintain a
very accommodative stance, but she added that the BOJ had
implemented an appropriate policy on prices.

“Suda did not sound so positive about taking more steps
blindly. It’s not clear how strong the measures the BOJ takes
next week will be,” said Naomi Hasegawa, senior strategist at
Mitsubishi UFJ Securities.

With the government’s room for further fiscal stimulus
limited by a public debt that is already close to 200 percent
of GDP, the six-month old administration has put pressure on
the central bank to stem deflation.

But the BOJ’s options are limited as long as the economic
outlook remains weak.

Expectations of further price declines in future could
persuade consumers and companies to delay spending and
investment even longer, adding more pressure on the economy.
Until demand picks up and more money flows into the system,
prices will struggle to recover.

The BOJ has said prices will rise eventually as the economy


Japan’s central bank law guarantees the BOJ independence in
its policy decisions, but it also requires the bank to
communicate with the government to ensure its policy is in line
with the government’s economic policy.

Few in the top circle of Japanese policymakers see the need
for a change in those stipulations.

“I am cautious about the framework of an accord,” Kan, also
deputy prime minister, told a parliamentary committee on
Wednesday in response to an opposition lawmaker’s question.

But some politicians, mostly from the opposition, have said
the BOJ needs to be more accountable for its decisions, blaming
it for putting Japan in deflation for much of the past 15

The BOJ is likely to debate easing again at its March 16-17
board meeting, after introducing a new funding operation in
December amid a wave of government pressure as the yen climbed
versus the dollar. [ID:nTOE6230A7]

“If they increase the cheap funding operation to replace
the corporate support scheme that expires in March, that’s
probably already priced in,” said Hasegawa of Mitsubishi UFJ

The Bank of Japan’s Suda dropped few hints, repeating the
BOJ’s view that easy policy alone is no panacea for deflation.

“Although maintaining easy monetary policy is the top
priority, it is important for the Japanese economy to undergo
bold structural reform as much as it needs a recovery,” she
said, referring to the need to fix Japan’s pension system and
get public finances in order to reduce concerns about the

“If structural reform is delayed, it would undermine the
stimulative effect of monetary policy,” she said.

Japan’s core machinery orders fell slightly less than
expected in January from the previous month, data showed on
Wednesday, offering more evidence that capital expenditure will
keep growing slowly this year as manufacturers raise spending.

Core private-sector machinery orders, a highly volatile
series regarded as an indicator of capital spending, fell 3.7
percent in January, less than a median market forecast for a
4.1 percent decline, after a 20.1 percent jump in December.

But the data also showed non-manufacturers remain wary on
capital spending, highlighting the weakness in domestic demand.

Annual wholesale price deflation eased to 1.5 percent in
February on a recent rise in commodity prices.

But economists say deflationary pressure is likely to
continue due to the big gap between supply and demand.

Japan pulled out of recession in April-June last year,
helped by a rebound in exports and industrial output as well as
a rise in consumption due to government subsidies. But
economists expect growth to slow early this year as the
government cuts public works and the impact of subsidies

Investment Analysis

(Additional reporting by Rie Ishiguro, Stanley White, Leika
Kihara and Tetsushi Kajimoto; Editing by Kim Coghill)

WRAPUP 2-Japan finmin wary of any formal policy accord with BOJ