Key facts
- Japan's government will add a footnote to its economic blueprint emphasizing the Bank of Japan's independence in monetary policy.
- An earlier draft had caused market jitters, leading to a sell-off in the yen and bonds.
- The government aims to reassure investors that it will not interfere with the central bank's policy decisions.
- The final version will state the importance of appropriate monetary policy for stable price rises.
- The blueprint is the first under Prime Minister Sanae Takaichi's administration and is expected to be approved next week.
Japan's government is set to clarify the Bank of Japan's independence in its final economic blueprint, a move designed to calm market concerns that had previously triggered a sell-off in the yen and bonds. An earlier draft had suggested the administration might pressure the central bank to delay interest rate hikes, leading to a minister admitting the need to adjust the language.
The revised blueprint will include a footnote referencing the legal clause that protects the central bank's autonomy in setting monetary policy. The government will also state its expectation for the Bank of Japan to guide policy appropriately to achieve stable price rises, signaling no intention to interfere. This clarification is crucial as Prime Minister Sanae Takaichi's administration has favored accommodative fiscal and monetary policies, raising investor worries about keeping borrowing costs low.
The Bank of Japan has raised interest rates twice since Takaichi took office, most recently in June to 1%, the highest in 31 years. Inflation has been around the BOJ's 2% target for four years, supported by higher import costs and wage growth. Despite this, a dovish board member, Toichiro Asada, recently cautioned that rising costs require close monitoring, indicating that further monetary tightening remains a possibility.