Bank of Japan puts self-defence ahead of solidarity with Fed’s Powell

The Bank of Japan’s absence from a list of central banks lining up to support Federal Reserve chair Jerome Powell reflects its aversion to politics and the government’s reluctance to cross the US, with an early election on the horizon.

In a sign of the sensitivity of the matter, the BOJ informally consulted the government about whether to sign the joint statement, but officials were not able to say yes in time for its release, according to two government sources.

“The reason we couldn’t immediately say yes is partly because of our relationship with the US,” one of the sources said on condition of anonymity due to the sensitivity of the matter.

A spokesperson for the BOJ declined to comment. The government’s top spokesperson, Minoru Kiuchi, also declined to comment, saying on Wednesday (Jan 14) the matter fell under the central bank’s umbrella.

In a rare joint statement on Tuesday, central bank chiefs from around the world stood shoulder to shoulder with Powell after the Trump administration threatened him with a criminal indictment – a sign of their fear that the move could imperil global central bank independence.

While BOJ governor Kazuo Ueda has stressed the importance of independence, he has refrained from commenting on US President Donald Trump’s attacks on the Fed.

The BOJ’s decision not to sign the statement was in line with its long-held practice of withholding comment on controversial and political topics, analysts say, which likely derives from Japan’s history of political meddling in monetary policy.

But it might also reflect the BOJ’s desire to avoid stepping into Trump-related controversy as Prime Minister Sanae Takaichi – who touts her close relationship with her American counterpart – stands at the precipice of an early election in February, some analysts said.

“The BOJ’s decision is in line with its protocol,” said former BOJ board member Takahide Kiuchi. “But it also shows how it’s not completely independent from government interference.”

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“Criticising US policy could put Japan’s government under heat from Trump,” said Kiuchi, who today serves as an economist at Japan’s Nomura Research Institute. “It’s safest to avoid making any comment on what’s happening overseas.”

Elsewhere in the Asia-Pacific region, New Zealand ‘s foreign minister rebuked the country’s central bank chief for signing the statement in support of Powell.

The BOJ is not immune

Under a law that took effect in 1998, the BOJ nominally enjoys independence, although that has not shielded it from political pressure to expand monetary support for an economy in the doldrums.

While the government cannot fire a BOJ chief, it has the authority to pick the governor and members of the board, who all need parliamentary approval.

Known as a fiscal and monetary dove, Takaichi rattled markets immediately after taking office in October. She said she had control over the direction of monetary policy and stressed her preference for low interest rates.

Later, when the yen slumped and risked pushing up import costs, her administration backed down and assented to the BOJ’s plan to raise interest rates to 0.75 per cent from 0.5 per cent in December.

But Takaichi’s reflationist advisers have repeatedly warned against the danger of additional interest rate increases.

Takaichi is widely expected to call a snap election in February, a move that would give her a chance to capitalise on her strong public approval ratings.

If Takaichi delivers a solid victory for her ruling party, her administration would have the authority to fill two seats that are opening up on the BOJ’s nine-member board. It might also have a say in who becomes the next governor when Ueda’s term ends in early 2028, analysts say.

“The BOJ is not immune to the kind of things happening with the Fed,” Kiuchi, the ex-BOJ board member, said. “Although not as explicit as the way Trump intervenes, Takaichi has and could make a lot of requests (about) what the BOJ ought to do. REUTERS