Japan should revise its central bank law to make it accountable for job creation and ending deflation, said Etsuro Honda, an economic adviser to Prime Minister Shinzo Abe.
“Monetary policy has the biggest impact when it creates expectations,” Honda, 58, said in an interview last week at the Prime Minister’s Office in Tokyo. “To ensure expectations are formed, the BOJ’s purpose needs to be legally documented.”
Abe said this year that the law could be revised if the central bank fails to “take responsibility and produce results,” while Deputy Governor Kikuo Iwata has also advocated a change. Honda’s comments suggest that a more aggressive approach may be needed to ensure the end of more than a decade of deflation.
Honda said the law needs to be changed to make the bank accountable for creating jobs, in addition to its current responsibility of price stability, similar to the U.S. Federal Reserve’s so-called dual mandate. The governor and other executives should also be made to explain their actions under the law, he said, while they are not required to now.
A former Finance Ministry bureaucrat who has known Abe for about 30 years, Honda toured the country last year making speeches about the benefits of reflation and impressed Abe enough to be made a special adviser.
Abe will speak in parliament today at the start of a legislative session in which bills will be discussed to boost investment, wages and corporate earnings. Honda said Abe’s growth strategy will have little effect as long as deflationary pressures persist, and a revision of the law would deliver a stronger commitment to boosting prices.
The change should be made before the sales tax is increased in April, he said, while adding this would be unlikely.
The 1998 Bank of Japan Law strengthened the bank’s independence by ending the government’s authority to dismiss the governor and deputy chiefs and its right over supervising BOJ operations. It states the bank should strive to achieve “price stability, thereby contributing to the sound development of the national economy.”
The central bank will wait until after April to add to its unprecedented easing because recent economic data have been strong, Honda said.
Machine orders jumped in August to the highest since the collapse of Lehman Brothers Holdings Inc. in 2008 and business sentiment rose last quarter to the most in six years.
“Preemptive monetary easing is difficult to justify when the numbers are good,” Honda said. “But when Abenomics loses momentum, so will these economic numbers.”
“I want the BOJ to constantly take a fighting pose as it takes time for the effects of monetary policy to be felt,” he said.
Honda said he expects the BOJ will gradually shift to buying more riskier assets such as exchange-traded funds as the scope for purchasing more Japanese government bonds is limited.