EDITORIAL: Economic measures

It is good to see the government and the Bank of Japan moving in tandem to deal with the yen's sharp rise and the flagging economic recovery to allay anxieties among the public. But the way they have collaborated has raised some questions.

In an extraordinary policy board meeting Monday, the BOJ decided to further ease its monetary policy. The central bank's action was followed by the government's announcement of an outline of additional economic stimulus measures.

Amid growing concerns that the global economy may slide back into recession, major Western industrial nations are tilting toward easing their monetary policies and allowing their currencies to depreciate.

The situation has led to sell-offs of the dollar and the euro and huge buying of the yen, driving up the value of the Japanese currency.

Expectations that the U.S. economy will deteriorate and the Federal Reserve Board will ease its monetary policy could lead to a further rise of the yen.

The BOJ relaxed its already easy monetary policy by expanding a new type of market operation to provide low-interest funds to banks to encourage lending. The program was introduced in response to the yen's appreciation triggered by the Dubai debt crisis that sent shock waves through global markets last year.

The BOJ hopes the measure, aimed at pushing down market interest rates, will stoke economic growth by sparking business investment. The step is also designed to ease yen-buying pressure by preventing the interest-rate gaps between Japan and the United States from narrowing, which would push up the yen against the dollar.

Alarmed by weaker-than-expected gross domestic product data for the April-June quarter that indicated the economy was rapidly losing steam, the government started working out a fresh economic stimulus package.

The government is moving in the right direction by putting priority on employment, as indicated by its proposals to help young people find jobs, and trying to pump up domestic demand by providing incentives for corporate capital spending at home.

The stimulus package, which has been cobbled together in haste, is relatively small because the government decided to tap only the 900-billion-yen ($10.7 billion) reserve fund to finance the measures.

But in line with its new economic growth strategy, the government should use the package as a launch pad for new policy initiatives to create jobs and demand in a wide range of areas, including the environment, energy and health and nursing care.

The process leading to the announcements by the government and the central bank raised some concerns, however.

Prime Minister Naoto Kan called for further monetary easing and requested a meeting with BOJ Governor Masaaki Shirakawa. This put pressure on the central bank to hold the extraordinary meeting of its policy board.

Kan's actions reflected his desire to score political points before the presidential election of the ruling Democratic Party of Japan in September.

Cooperation between the government and the central bank is important. But Kan should always show respect for the BOJ's independence in his words and deeds.

Given that the government has to keep issuing huge amounts of bonds every year, it is vital to protect the BOJ's independence.

The prime minister needs to maintain an appropriate distance from the BOJ if he wants to prevent suspicions that the bank may degenerate into an institution to buy government bonds. Such concerns could destroy international confidence in the Japanese economy.

The BOJ must also do some soul-searching. In particular, the bank's poor communication with markets may have contributed to the yen's rapid rise in recent months. It is important for the BOJ governor to use news conferences and other opportunities for public communications to send messages that discourage speculators from excessive buying of the yen.

In a recent speech, FRB Chairman Ben Bernanke referred to options for credit easing on which Fed policymakers have not reached a consensus. The BOJ should not keep itself bound by the tradition of speaking in guarded language.

--The Asahi Shimbun, Aug. 31