(Bloomberg) -- Japan’s new government trusts the Bank of Japan’s decisions and will work closely with the central bank to eliminate the risk of a return to deflation, according to a key ally of Prime Minister Shigeru Ishiba.
BOJ Governor Kazuo Ueda and Ishiba share an understanding that beating deflation, a long-sought goal, is their priority and will continue to observe a 2013 joint policy accord to achieve that objective, Economic Revitalization Minister Ryosei Akazawa said in a group interview Tuesday.
Akazawa acknowledged that he can accept gradual interest rate hikes even before a complete exit from deflation as long as they don’t cause a shock to the Japanese economy or markets by worsening the lending environment too much.
“I believe we can work closely together to overcome deflation,” Akazawa said. “I expect the BOJ to continue to ensure sufficient communication and to work closely with the government, and conduct appropriate monetary policy management to achieve the 2% price stability target in a sustainable and stable manner.”
Since last week, government officials have been trying to reassure investors that there will be no major shift in policy under Ishiba compared with his predecessor Fumio Kishida. The comments from officials follow a series of sharp market movements indicating nervousness in markets over the intentions of the new administration.
Before taking his current post, Akazawa served as state minister of finance. He already attended BOJ policy-decision meetings this year as the central bank scaled back its monetary stimulus and delivered its first two interest rate hikes in 17 years.
Akazawa attracted attention and moved markets at the very start of Ishiba’s administration by calling for a cautious judgment on the timing of another rate hike. The prime minister reinforced those remarks with stronger comments indicating that, for the time being, Japan isn’t ready for rates to go up.
On Tuesday, Akazawa stuck to a tone of unity with the central bank, emphasizing that their common goal is to ensure Japan’s economy doesn’t fall back into a state of falling prices.
Price growth has stayed at or above the BOJ’s 2% target for more than two years, but the government has yet to declare the end of deflation.
While at one point earlier this year it appeared likely the government would make the declaration in the coming months, Ishiba has set out a three-year time frame for achieving the goal. That indicates his government is in no rush to reduce support for the economy.
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