The government and the Bank of Japan must work together to support the economy, the country’s economy minister was quoted as saying by Japanese media in the wake of premier Shinzo Abe’s announcement of a bigger-than-expected fiscal spending package. The remark suggests the earlier-than-expected announcement of Abe’s economic package on Wednesday was an attempt by the government to pressure the BOJ into expanding monetary stimulus at a two-day rate review ending on Friday.
“The prime minister’s message was powerful. I think people at the BOJ will take into that account and make an appropriate decision,” Economy Minister Nobuteru Ishihara said in a television appearance on Wednesday evening, the Kyodo news agency reported. “I think (BOJ Governor Haruhiko) Kuroda understands that the world is watching” the bank’s policy response, Ishihara said – just hours after Abe revealed the massive scale of the new stimulus campaign.
Abe unveiled a surprisingly large 28 trillion yen ($267 billion) stimulus package on Wednesday to reflate the economy, sending Japanese stocks higher and weighing on the yen. Many BOJ policymakers prefer to hold off on easing on Friday, worried about the rising costs and diminishing returns of an already massive asset-buying programme that is drying up bond market liquidity.
But Ishihara’s remarks suggest that political considerations may nudge the BOJ into action, even as the central bank struggles to beat economic headwinds with its dwindling policy tool-kit.Finance Minister Taro Aso had also told reporters on Tuesday that he hopes the BOJ continues to do its utmost to beat deflation, signalling his hope of additional monetary easing.