TOKYO (MNI) – Bank of Japan Governor Masaaki Shirakawa and Prime
Minister Yoshihiko Noda met on Friday morning ahead of the BOJ’s policy
meeting next week, for what is believed to be a routine exchange of
views as part of their policy coordination aimed at overcoming deflation
and boosting economic vitality.

A BOJ official confirmed that the two held a meeting this morning
but declined to disclose further details.

The BOJ board will hold two policy-setting meeting this month, on
April 9-10 and again on April 27.

Shirakawa and Noda last held what they called a routine, frank
discussion on Feb. 15, a day after the BOJ board voted to conduct
further monetary easing by raising the scale of the bank’s asset-buying
program to Y65 trillion to Y55 trillion.

The Y90.3 trillion national budget for fiscal 2012 that began April
1 took effect on Thursday after a delay caused by stiff opposition to
Noda’s tax hike plans in the hung parliament. However, the government
still needs to win parliamentary approval of debt issuance for funding
the budget.

As the government plans to embark on fiscal consolidation and
double the 5% sales tax in the next few years, Noda wants the BOJ to
continue monetary easing to help Japan move out of years of deflation.

The BOJ leadership is aware that injecting massive amounts of cash
into the financial system alone will not generate new demand, but it has
promised to support the economy by keeping zero interest rates, buying
financial assets, and offering low-interest loans to support bank
lending for projects expected to boost Japan’s growth potential.

To help beat deflation, BOJ officials say, Japan must raise its
growth potential by boosting overall productivity and providing new
products and services to match the changing demands of a fast-aging
society.

As the scope for lowering the current overnight interest rate
target of zero to 0.1% is limited, the focus for any further monetary
policy easing would be on the BOJ’s unconventional measures to help
stimulate commercial bank lending, which it hopes will lift the Japanese
economy toward a sustained recovery with mild price increases.

tokyo@marketnews.com
** MNI Tokyo Newsroom: 81-3-5403-4833 **

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