A trope of current writing about the BoJ is that it is coming under increasing political pressure from the Democratic party government to ease monetary policy. Pressure, maybe, but it’s an arm around the shoulders rather than a cattle prod in the back.
Public government pressure takes the form of regular comments by finance minister Naoto Kan. Here is a sample, via Reuters:
“They are holding a policy board meeting today and the BoJ has reiterated it would keep very easy monetary conditions … To be honest, I feel they could do more, but we are following the same policy direction by communicating with each other.”
It’s not very scary stuff. There are also other reasons why the BoJ feels nothing like the political pressure to act on deflation that it did back in 2001.
(1) The government’s rhetoric is not matched by its most concrete action toward the BoJ so far: the appointment of Professor Ryuzo Miyao of Kobe University to the policy board. I haven’t met Prof Miyao but by all accounts he is in line with BoJ thinking about the risks of unconventional monetary policy.
(2) Apart from Mr Kan, prime minister Yukio Hatoyama has appeared reluctant to push hard on anything; financial services minister Shizuka Kamei seems ready to attack the BoJ but is only a coalition ‘ally’ of the Democrats; and Democratic party kingpin Ichiro Ozawa is embroiled in a political funding scandal. Pressure on the BoJ is not uniform.
(3) If the government really wanted to influence the independent BoJ, it would need to legislate, to set a binding inflation target for example. Before upper house elections later this year, however, the government not only has to pass all its budget legislation but needs to make a start on its manifesto promises. There isn’t time for a Bank of Japan bill and the BoJ knows it.
Japan’s politicians are sure to repeat their calls on the BoJ for more action – that’s good politics – but I think anyone expecting that pressure to lead to drastic action is in for a wait.
