Remarks on Tuesday from finance minister Masajuro Shiokawa commending the BOJ s judgment on monetary policy also seem to show that the government is taking a step back this time to allow the central bank to discuss monetary policy without the overt political pressure it faced last time.
Economists say, however, that pressure for more easing is likely to persist in the medium term.
Not only is Japan reeling under an incessant flow of weak economic data, but a government panel last week explicitly urged the BOJ to be flexible on policy to help ease the pain of reforms being planned under Prime Minister Junichiro Koizumi. But we still predict further moves by the BOJ in September. By doing so, it effectively returned to the zero-rate policy which it abandoned last August. Additional steps could include raising the targeted amount of current account deposits parked at the central bank and expanding its outright buying of Japanese government bonds. Politicians have also mentioned as options setting an inflation target and allowing the yen to weaken, although the prior is seen less likely, while the latter is under the Finance Ministry s jurisdiction.