Nov. 6 (Bloomberg) -- Japan’s government needs to improve communication with the central bank to convey Prime Minister Yukio Hatoyama’s economic policy, a ruling party lawmaker said.

“The new government’s strategy of making domestic demand drive the economy hasn’t been fully conveyed” to the Bank of Japan, Keisuke Tsumura, one of the top three officials for economic and fiscal policy, said in an interview in Tokyo.

A gap between the views of the ruling Democratic Party of Japan and the central bank has become more evident since the government took office in September. Hatoyama last month criticized a decision by the central bank to end emergency credit-easing programs by saying his administration can’t be “that optimistic” about the economic outlook.

“The lack of communication is becoming clearer,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo and a former Bank of Japan official. “The central bank will need to work more on communicating closely with the government to smoothly implement their policies.”

The Bank of Japan forecast last week that growth in the world’s second-largest economy will accelerate in fiscal 2011, led by demand from abroad. The DPJ has pledged to reduce dependence on exports and boost consumer spending to achieve sustainable growth.

“We will commit to enhancing understanding of the new government’s economic policies by holding more close discussions,” Tsumura, 38, a parliamentary secretary who attends Bank of Japan policy meetings on behalf of the Cabinet Office, said in yesterday’s interview.

Adverse Effect

At a gathering on Oct. 13-14, Tsumura asked BOJ policy makers for their views on the government’s economic agenda, according to minutes released yesterday. Some members responded that the government’s decision to freeze about 3 trillion yen ($33 billion) from this year’s extra budget “might adversely affect the economy, at least in the short run,” and it should present new policies sooner.

The central bank raised its evaluation of the economy at the end of the meeting. Later that day, Finance Minister Hirohisa Fujii said economic conditions were “more severe” than the Bank of Japan’s assessment suggested. “We need to try to understand the BOJ’s position,” he said.

Tsumura said more open discussions between the government and the Bank of Japan would help the central bank fulfill its statutory obligation to explain its economic view to the public.

‘Clearly Stated’

“First of all, it’s strange we don’t have such an opportunity even though it’s clearly stated” in the Bank of Japan Act, said Tsumura, who used to work at the central bank. “I wouldn’t rule out the chances” of setting common economic goals with the central bank, although no specific discussions have taken place, he said.

There are at least two regular occasions for policy makers to exchange views on the economy and financial markets each month. As well as the Bank of Japan policy meetings, which Cabinet Office and Finance Ministry officials attend without voting, central bank Governor Masaaki Shirakawa goes to gatherings on the government’s monthly economic assessment.

Tsumura said those meetings are insufficient and separate forums should be held to discuss specific topics such as fiscal policy and falling prices. Deputy Prime Minister Naoto Kan said this week that the government is considering holding additional consultations with the central bank.

Yesterday’s minutes showed Tsumura urged the bank to “pay due attention to the risk of deflation” and “take appropriate measures” to help companies get access to financing because they “continued to face a severe business environment.”

Shirakawa said this week that risks for the economy are “becoming balanced” and he doesn’t see the threat of falling prices dragging on growth.

“I’m carefully looking at every downside risk” and monitoring the risk of slipping into deflation, Tsumura said, while adding that he doesn’t see any major differences in the economic views of the government and the central bank.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

Last Updated: November 5, 2009 22:40 EST