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Japan fiscal policy will not rely on BOJ bond buying: finance chief

The Japanese government must dispel market perceptions that its fiscal policy is reliant on the Bank of Japan’s bond buying, Finance Minister Shunichi Suzuki said Tuesday, adding that fiscal reconstruction must be prioritized after the first leadership change at the central bank in a decade.

Suzuki told a press conference that the ministry will leave the BOJ to decide monetary policy under new Governor Kazuo Ueda, who has expressed his view that the current monetary policy framework, including its program to keep borrowing costs at rock-bottom levels, is appropriate.

Japanese Prime Minister Fumio Kishida (R) and new Bank of Japan governor Kazuo Ueda shake hands before holding talks at the premier’s office in Tokyo on April 10, 2023. (Kyodo) ==Kyodo

The BOJ’s massive bond purchases have helped debt-ridden Japan curb debt-servicing costs, with over half of outstanding debt held by the central bank. The bank has rejected criticism that its intervention amounts to the central bank financing government spending.

“We do not think it appropriate to manage our finances on the premise that the BOJ buys government bonds. We must prevent financial markets from having such suspicions and losing confidence (in our policy),” Suzuki said.

“The government will aim for economic and fiscal management in a responsible way, with the aim of achieving a primary balance surplus by fiscal 2025,” the minister added. The primary balance is a measure of the difference in government tax revenue and spending, with debt-servicing costs not included.

Prime Minister Fumio Kishida and Ueda agreed Monday to remain committed to a 2013 joint accord which has served as the basis for the BOJ’s monetary easing to achieve its 2 percent inflation goal.

Financial markets are rife with speculation that Ueda, an academic who took over from Haruhiko Kuroda on Sunday, will modify or scrap the BOJ’s yield curve control program.

The program sets short-term interest rates at minus 0.1 percent and guides 10-year government bond yields to around zero percent and is criticized for distorting bond markets.

Related coverage:

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Kazuo Ueda becomes 1st BOJ governor from academia in postwar Japan

FOCUS: Missed inflation goal haunts departing Bank of Japan chief Kuroda

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