CEFP Emphasizes Close Coordination between Government and BOJ

The Council on Economic and Fiscal Policy (CEFP) in Japan has reiterated the importance of close coordination between the government and the Bank of Japan (BOJ) on monetary policy. In a statement submitted to their meeting, the four private-sector members of the CEFP emphasized the need for respect for the BOJ's independence while sharing assessments of economic and price developments.

The recommendations mark a shift from May when they urged the BOJ to pay attention to funding conditions at smaller firms, seen as a call for caution on further interest rate hikes. Economy Minister Minoru Kiuchi told reporters that the government and the BOJ maintain close communication and regularly exchange views at various levels.

The CEFP's proposals come amid market turmoil caused by successive drafts of Prime Minister Sanae Takaichi's annual fiscal and economic blueprint, which repeatedly revised references to monetary policy to allay concerns over its pressure on the central bank to keep rates low. The final version of the blueprint inserted a footnote explicitly referring to a legal provision protecting the BOJ's independence in policymaking.

The private-sector members' statement stressed that recent rises in long-term interest rates cannot be explained by fiscal policy alone, citing factors such as monetary policy, inflation expectations, and overseas markets. Japan's primary balance has improved more than other major economies, but long-term yields have been driven by a range of factors.

The government met with bond-market participants from about 20 securities firms, banks, and asset managers to explain its policies and gather views on recent bond market developments. The meetings followed Takaichi's pledge to enhance communication with markets to preserve confidence in Japan's finances.