By Leika Kihara
TOKYO (Reuters) – The new governor of the Bank of Japan received a lukewarm response from the government on Monday to his plan to conduct a review of past monetary easing steps, as it remains cautious of declaring victory in a decades-long battle to end deflation.
Governor Kazuo Ueda took up his post in April, and with inflation exceeding the BOJ’s 2% target, markets are rife with speculation he will phase out his predecessor’s massive stimulus that sets a 0% cap on long-term interest rates.
Ueda announced a plan to review past monetary policy moves last month, when the BOJ kept its interest rates at their ultra-low levels. The review was seen as laying the ground for Ueda to gradually reel in the monetary stimulus.
In a press conference on Monday, Economy Minister Shigeyuki Goto said the government “recognises and believes it is meaningful” for the BOJ to look back at the stimulus measures it took to combat deflation in the past 25 years.
But Goto said he was also mindful of the BOJ’s explanation that the review would not prevent the bank from shifting policy if it needed to respond to economic shocks.
“When various downside risks emerge, and the economy and financial conditions change, the BOJ must respond nimbly,” Goto said, signaling the government’s hope for the central bank to focus on supporting the economy with ultra-loose policy.
Goto’s remarks came after a meeting of the top economic council on Monday, where policymakers and academics debated the role the government and the BOJ should play to push wages higher in a sustainable way and eliminate the risk of a return to deflation.
But some policymakers are wary of declaring an end to deflation risks on concern that slowing global demand could hit Japan’s economy and discourage firms from raising wages.
In a sign the BOJ will be in no rush to hike rates, the BOJ last month tweaked its policy guidance to clarify that wage growth must accompany price rises for the central bank to consider phasing out stimulus.
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