Bank of Japan Governor Masaaki Shirakawa pledged today to keep monetary policy easy to help pull the country out of deflation, reassuring the government the central bank will cooperate to support an economic recovery.
In his first public appearance since new finance minister Naoto Kan assumed office on January 6th, Mr Shirakawa stuck to the bank's official line on policy and offered few clues on whether further monetary easing was on the horizon.
But he repeated the BOJ's determination to beat deflation by maintaining very low interest rates, a stance that has recently won praise from Kan.
"The BOJ recognises that it's very important for Japan's economy to pull out of deflation and return to sustainable growth with price stability," Mr Shirakawa said in a speech to the central bank's regional branch managers.
Mr Shirakawa also stuck to the BOJ's assessment of the economy, saying it was picking up with exports and output on the rise, although domestic private demand lacked momentum.
The BOJ is expected to keep interest rates near zero and hold off on new policy initiatives at its policy-setting meeting on January 25th-26th.
The central bank will also review its long-term growth and price forecasts at the meeting, although no major changes to them are expected.
The BOJ is forecasting three years of price falls and has said it will not tolerate zero inflation, let alone deflation, effectively pledging to keep rates near zero for as long as necessary.
Mr Kan, a heavyweight of the ruling Democratic Party, has been one of the most vocal cabinet critics of the BOJ and is seen as more interventionist on monetary policy than his predecessor, Hirohisa Fujii, who stepped down for health problems.
He said last week the government and the BOJ were working well together to beat deflation, and that the government must respect the central bank's independence.
But BOJ officials believe Mr Kan will pressure the bank for further monetary easing if the economy falters, and so they are mulling what steps they have left, with rates already very low.
Officials are considering buying more government debt or increasing the easy money the bank can make available via an expansion of the fund-supply operation put in place in December.
Reuters