(For more stories on the Japanese economy click [ID:nECONJP])
* Govt wants BOJ to support economy with monetary policy
* BOJ may end corporate support steps as early as Fri meeting
* Govt, BOJ must share thinking on economy -MOF's Noda
* BOJ, govt plan meetings to share views on economy -source
By Tetsushi Kajimoto and Leika Kihara
TOKYO, Oct 29 Japan's government kept up pressure
on the central bank to continue helping the economy on the eve of
a policy meeting in which it may scale back emergency corporate
funding launched at the height of the financial crisis.
Government officials have warned against a premature end to
corporate life support, but the Bank of Japan is leaning towards
ending some schemes, such as buying corporate debt, in December,
sources with knowledge of the bank's thinking have said.
But a plan for the central bank and the government to start
monthly talks to discuss the economy suggested officials sought
to avoid an open confrontation over policy.
Deputy Finance Minister Yoshihiko Noda, speaking to Reuters
on Thursday, would not comment directly on any of the central
bank's programmes but said monetary policy should continue to
focus on helping the economy.
Finance Minister Hirohisa Fujii criticised the central bank
earlier this week for what he said was a too rosy view of the
world's second-biggest economy. [ID:nT285056]
"It is still important for the BOJ to support the economy on
the monetary front," said Noda, who will attend the central
bank's meeting on Friday as one of the government's two
"I hope the government and the BOJ share a common
understanding to respond (to economic conditions) while keeping
in close contact." [ID:nT350194]
Government representatives have no vote but can express
opinions and request delays in voting, although the bank has the
right to reject such requests.
Japan pulled out of its longest recession since World War Two
in the second quarter, but the new government, which swept to
power in an August election with pledges to steer the economy
towards consumers and away from export markets, is worried
whether the upturn can last.
Noda would not say how the government would react if the
central bank decided to withdraw its funding lifeline for firms,
but echoed Fujii's concerns about the strength of the economy.
The central bank argues that credit markets have largely
recovered from the shock of the global crisis and emergency
programmes are no longer necessary, whereas the government says
money remains tight for smaller companies that are the backbone
of the economy.
The Bank of Japan's independence is guaranteed by law and its
officials would never admit that government pressure could
influence its policy decisions. But people familiar with its
thinking told Reuters the central bank was keen to avoid a
confrontation with the new administration and to find common
ground on the economy.
They also said the government's criticism of the central
bank's assessment of the economy did not go unnoticed.
"What policymakers say won't affect the BOJ's decisions," a
source with direct knowledge of the BOJ's thinking said.
"But the bank always takes into account various factors and
the view of policymakers shouldn't be ignored."
In fact, according to sources familiar with the matter, the
central bank and the government have agreed to hold monthly
meetings to discuss the economy, with the first expected early
next month ahead of the bank's Nov. 19-20 monetary policy review.
The talks would steer clear of details of monetary policy to
respect the bank's independence, the Nikkei business daily
At present, the only regular government meeting the BOJ
governor attends is a monthly gathering of economic ministers,
held to approve the government's monthly economic report.
In a sign that the central bank was willing to accommodate
some of the government's concerns, while avoiding giving and
impression that it was caving in to pressure, Governor Masaaki
Shirakawa earlier this month described ending funding schemes as
mainly a technical matter.
At the same time he promised the central bank would keep
interest rates very low to broadly support the economy.
Central bank officials say the BOJ is not thinking about
increasing bond purchases or further easing monetary policy in
any way, but economists say the prospect of protracted deflation
and renewed doubts about the strength of the global economic
recovery may force the BOJ to reconsider.
"I'm not sure how the BOJ would justify not doing anything
beyond keeping rates near zero when it's predicting three years
of deflation," said Hirokata Kusaba, a senior economist at Mizuho
The BOJ is already forecasting two years of deflation and is
likely to extend that to three years when it issues its
twice-yearly economic outlook report on Friday. [ID:nT271532]
(Additional reporting by Yuko Yoshikawa and Hideyuki Sano;
Writing by Tomasz Janowski; Editing by Michael Watson)