A powerful member of Japan's ruling party poured cold water on the Bank of Japan's campaign for raising interest rates, saying normalising rates is not the sole purpose of the monetary policy.
"I would like the monetary authority to be well aware of the government's economic policy. We are aiming for ending deflation and achieving sustainable growth," Hidenao Nakagawa, secretary-general of the Liberal Democratic Party (LDP), told a news conference on Friday.
"Normalising interest rates is not the only purpose of the monetary policy," Nakagawa added. The BoJ has been saying it would raise rates gradually based on an improvement in economic and price conditions. It has also said it hopes to normalise the interest rate mechanism after keeping rates at or just above zero for most of the past decade.
After keeping rates on hold on Thursday, BoJ Governor Toshihiko Fukui underlined the need to raise interest rates in the future despite the lack of inflationary pressure. "I'm not saying we can raise rates any time when prices are falling," Fukui said after the BoJ left rates unchanged at 0.5 percent.
"But if we examine everything, it is possible to raise rates even when prices are falling," he told a news conference. Fukui pointed to risks of sharp economic swings and misallocation of funds in the future if people have a fixed idea that interest rates will to stay low even while the economy is expanding.
But Nakagawa stressed the need for the BoJ to work together with the government. "They (the BoJ) should manage their policy in accordance with the annual and mid-term economic policy plans agreed by the government and ruling parties," Nakagawa said.
Speaking at a separate news conference, Economics Minister Hiroko Ota on Friday expressed hope that the BoJ would continue to support the government's efforts to shake off deflation by maintaining easy monetary conditions.
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