By Keiko Ujikane and Kyoko Shimodoi
July 15 (Bloomberg) -- Lawmakers at the Democratic Party of Japan said they would support the central bank’s independence should they win next month’s general election and govern for the first time.
“We should respect the central bank’s independence on monetary policy,” Tsutomu Okubo, who is a director of the upper house’s financial committee, said in an interview in Tokyo on July 13. Masaharu Nakagawa, the party’s shadow finance minister, last week said the DPJ wouldn’t exert pressure on the bank to keep rates low.
Bank of Japan policy makers have come under pressure from ruling Liberal Democratic Party politicians when raising borrowing costs: former Governor Masaru Hayami was told his job may be on the line before ending the bank’s zero interest rate policy in August 2000. Prime Minister Taro Aso this week called elections for Aug. 30 -- a contest that polls show may end his party’s half-century grip on power.
“A politician shouldn’t say the bank needs to raise or lower interest rates,” said Okubo, 48, adding that he sees no need for the central bank to take additional policy steps since it has lowered the key overnight lending rate to 0.1 percent and bought corporate debt. He indicated it may be too early to unwind those policy measures set in place to spur growth.
“The timing of the exit should be considered carefully because the global economy hasn’t recovered yet,” said Okubo, who is a former banker at Morgan Stanley in Tokyo. “There’s a possibility that the global economy will experience a double-dip recession. We can’t underestimate the possibility.”
Meeting Today
Governor Masaaki Shirakawa and his colleagues may extend the emergency-credit programs at a policy meeting today, according to analysts including Masaaki Kanno, chief economist at JPMorgan Chase & Co. in Tokyo. They will also hold the rate at 0.1 percent, according to all 25 economists surveyed.
“In the beginning, the DPJ will probably be more respectful of the BOJ’s independence,” said Kanno, who is also a former central bank official. “But it’s questionable whether that honeymoon period will continue if the party has trouble governing and is held accountable.”
The Bank of Japan gained independence from the government in 1998. That didn’t stop LDP lawmaker Hideyuki Aizawa from suggesting Hayami would be dismissed when the bank raised rates in 2000. The LDP’s Hidenao Nakagawa said in November 2005 that the government may revise the law that guarantees the bank’s autonomy if the bank undid its quantitative easing policy too quickly. The threats didn’t affect policy decisions.
Compromise Independence
The DPJ last year blocked the appointment of Toshiro Muto, a former top bureaucrat at the Finance Ministry, as BOJ governor and prevented others from joining the board, saying their backgrounds as government officials compromised the central bank’s independence. Okubo said officials shouldn’t hold governor or deputy governor posts at the bank.
Okubo also said enhancing trust in the U.S. dollar and Treasuries is beneficial for Japan and the country shouldn’t change its reserve allocations for the time being.
In the long term, Japan should seek an efficient way to boost returns by, for instance, shifting some of the foreign reserves to government-owned agencies such as Development Bank of Japan by using currency swaps, Okubo said.
He also said International Monetary Fund bonds may be attractive to boost returns on Japan’s foreign reserves if the securities offer higher yields than those on U.S. Treasuries.
Okubo, who is the party’s shadow vice minister for banking regulation, also said he agrees with Nakagawa’s call for asking the U.S. to sell debt denominated in yen, so-called samurai bonds, as a way to diversify reserves and promote the globalization of the Japanese currency. Okubo recommended asking the U.S. to issue 30-year samurai bonds.
To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net; Kyoko Shimodoi in Tokyo at kshimodoi@bloomberg.net
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