Japanese economic panel members stress BOJ independence

Private-sector members of Japan's key economic advisory panel on Wednesday reiterated the need for close coordination between the government and the Bank of Japan on monetary policy, while stressing respect for the central bank's independence. The four private-sector members of the Council on Economic and Fiscal Policy said the government and the BOJ should share assessments of economic and price developments and work together closely, while each side performs its own role.

Their recommendations differed from May, when the same members called on the BOJ to pay close attention to funding conditions at smaller firms, a move that was seen as a warning against further interest rate hikes. The statement was submitted to the panel's meeting. The CEFP, chaired by the prime minister and including economy-related ministers and the BOJ governor, oversees Japan's fiscal blueprint and long-term economic policies. The private-sector members' proposals form a basis for discussions at the panel.

The careful wording reflects lessons from the 30. Market turmoil followed successive drafts of Prime Minister Sanae Takaichi's annual fiscal and economic blueprint, after references to monetary policy were repeatedly revised by the government to ease concerns that it was pressuring the central bank to keep rates low. The final version of the blueprint added a footnote that explicitly cited a legal provision protecting the BOJ's independence in policymaking.

The BOJ has faced heightened sensitivity as Japan's long-term interest rates have risen sharply, with investors pricing in further BOJ rate hikes, scrutinising Takaichi's spending plans and reacting to a broader rise in global bond yields. The private-sector members, two of whom are seen as reflationist aides of Takaichi, said in their statement that the recent rise in long-term interest rates cannot be explained by fiscal policy alone. They said Japan's primary balance has improved more than that of other major economies and that long-term yields have been driven by a range of factors, including monetary policy, inflation expectations and overseas markets.

In a separate document submitted to the panel on Wednesday, the government said it met with bond-market participants from The panel met with about 20 securities firms, banks and asset managers to explain its policies and take in views on recent bond market developments. The meetings followed Takaichi's pledge to improve communication with markets to preserve confidence in Japan's finances.