Japan’s government will call for monetary policy that bolsters private demand, a draft of its long-term economic blueprint seen by Reuters showed, signalling its preference for the central bank to keep borrowing costs low.

Monetary Policy

The draft also urges the Bank of Japan (BOJ) to align its decisions with Prime Minister Sanae Takaichi’s push to reflate growth, citing legal provisions requiring the central bank to coordinate policy with the government.

The dovish tone of the blueprint, which anchors long-term economic policy, may influence the BOJ’s decisions on both the pace and timing of future rate increases as it transitions away from years of ultra-low borrowing costs.

The government won’t hesitate taking nimble and sufficient steps to ensure Japan does not return to deflation, the draft said in pledging steps to boost its long-term growth potential.

As the government seeks to achieve strong growth under its economic and fiscal policy, appropriate monetary policy that supports private demand through stable price rises is extremely important, according to the draft seen by Reuters on Wednesday.

BOJ Independence

While Japanese law guarantees BOJ independence, it also mandates close coordination with the government to ensure policy alignment.

Citing that requirement, the draft urges the BOJ to work closely with the government to sustainably and stably achieve its 2% inflation target, while monitoring progress towards a positive cycle of wage and price gains.

The BOJ next meets on July 30-31, when it is widely expected to hold rates steady but will also update quarterly forecasts that markets will parse for signals on the timing of the next hike.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.