By The Straits Times | Created at 2026-07-28 08:41:53 | Updated at 2026-08-04 00:59:11
6 days ago
TOKYO – Japanese Finance Minister Satsuki Katayama characterised the government’s relationship with the central bank as “normal and smooth,” brushing aside the view the administration sought to signal its reservation over rising interest rates.
“Day-to-day monetary policy operation falls under the Bank of Japan’s jurisdiction,” Katayama said in a Reuters NEXT Newsmaker interview conducted at an event hosted by LSEG in Tokyo on July 28.
Moreover, she stressed the need to step up communication with the bond market on fiscal policy to ensure market trust, as the government will soon start the process of compiling the 2027 budget.
While the administration has no plans to set a ceiling for annual debt issuance, it “will proceed with budget compilation in a way that keeps the amount of issuance within a range that bond investors would view as reasonable,” she said.
“Rather than waiting until the final budget draft is compiled in December to present those conclusions, I think it will be necessary this time to engage with the market on an ongoing basis throughout the process.”
A draft of dovish Prime Minister Sanae Takaichi’s inaugural economic blueprint, which serves as the foundation for budget compilation, rattled markets earlier in July by urging the BOJ to align more closely with the government’s drive to revive growth.
Acknowledging investor fears of political encroachment on monetary policy, the final version added a footnote citing a legal provision that safeguards the BOJ’s independence in setting policy.
Katayama, a finance ministry bureaucrat when lawmakers debated the BOJ independence law in the late 1990s, said the legislation was designed to strike a balance between protecting the central bank’s autonomy and strengthening accountability through greater transparency.
Katayama said the language in the initial blueprint did not intend to pressure the BOJ, but it likely caused confusion because it was drafted by staff lacking first-hand experience and insight into the deliberations that shaped the law.
The law and its implementation involved various views of hawks and doves on lessons from the creation and burst of Japan’s asset price bubble in the 1980s and 1990s, she said.
“The initial version of the blueprint probably lacked consideration over such views,” she said. “Our relationship with the BOJ is normal and smooth.”
On the yen’s recent declines, Katayama said a weak currency had both merits and demerits for the economy. She declined to comment, when asked about the possibility of joint yen-buying intervention by Japan and the US.
“There’s no change to our stance that we’re ready to respond on exchange-rate moves anytime as needed,” she said, adding that she believed it was a position shared by Washington.
She also cited the US Treasury’s semi-annual currency report released last week, which pointed out that excess volatility in the yen was undesirable.
“We were waiting and closely watching the US report,” she said. “We recognise the United States has said it does not want to see sharp moves.”
Asked about her recent call for state pension funds such as the Government Pension Investment Fund (GPIF) to invest more in domestic assets, Katayama said GPIF has set rules for managing assets and would need to follow them if it seeks to change the current portfolio. REUTERS
