By Yoshifumi Takemoto and Leika Kihara
TOKYO, July 7 (Reuters) – Japan’s government on Tuesday pushed back against market views it was watering down its commitment to fiscal reform and pressuring the central bank to keep rates low, as concerns over its expansionary policy push bond yields to multi-decade highs.
In a draft economic blueprint released last month, the government called on the Bank of Japan to align monetary policy with government efforts to boost growth and removed language pledging to improve Japan’s fiscal health.
The yield on the 10-year Japanese government bond (JGB) rose to a 30-year high of 2.83% on Monday as the draft stoked fears the administration’s big spending plans and preference for low rates could worsen Japan’s finances and delay BOJ rate hikes.
Economy Minister Minoru Kiuchi, who oversees the compilation of the blueprint, said market perception that the blueprint intended to keep BOJ rate hikes in check was a misunderstanding.
“There is no change to the government’s stance that specific monetary policy means fall under the jurisdiction of the BOJ,” Kiuchi told a press conference on Tuesday.
He also said the government had no intention of resorting to reckless spending, adding that the draft blueprint’s language did not signal a retreat from fiscal discipline.
Kiuchi said he had no plans for now to tweak the language on fiscal and monetary policy. The draft blueprint is expected to be finalised at a cabinet meeting later this month.
In the draft of Prime Minister Sanae Takaichi’s first economic blueprint, the government said it would no longer set annual targets for achieving a primary budget surplus, instead positioning it as an indicator managed over multiple years.
The government’s main fiscal target will be changed to Japan’s debt-to-GDP ratio, which is less affected by the size of borrowing as long as the economy keeps growing.
Since taking office in October, Takaichi has pledged to pursue a “responsible, proactive fiscal policy” that focuses on addressing what she describes as decades of under-investment that eroded Japan’s economy and global competitiveness.
The focus on big spending and a lack of clarity on funding have pushed up bond yields as investors fret about the impact on Japan’s already tattered finances.
(Reporting by Yoshifumi Takemoto and Leika Kihara; Editing by Christian Schmollinger and Jacqueline Wong)
