Takahiro Sekido, who worked at the Bank of Japan for more than a decade before becoming a strategist at the Bank of Tokyo-Mitsubishi UFJ Ltd., said the central bank will become more receptive to political pressure for monetary easing.
The BOJ and Japanese government said in a joint statement today that they will work together to overcome deflation. BOJ Governor Masaaki Shirakawa said the central bank aims to achieve its 1 percent inflation goal through “powerful monetary easing,” while Economy Minister Seiji Maehara and Finance Minister Koriki Jojima said the government will formulate measures to counter downside risks to the economy.
The central bank today added 11 trillion yen ($139 billion) to its 55 trillion-yen asset-purchase program, its main policy tool. The government “strongly” expects the BOJ to continue powerful monetary easing, the statement said.
The yen rose after the central bank’s decision, and was up 0.5 percent to 79.42 per dollar as of 9:15 a.m. in London.
“It’s significant for the BOJ and government to make a written commitment to cooperation” in overcoming deflation, Sekido said.
“Political pressure will remain strong on the central bank to ease policy further, but today’s statement confirms that the BOJ will become more receptive to that pressure.”
“It means the BOJ will take a more accommodative stance.”
“Once markets fully digest the implications of today’s announcement, the BOJ’s policy will lead to mild weakness in the yen.”
“Today’s move will limit the upside risk to Japan’s government bond yields.”