MNI INTERVIEW:BOJ Goes To Neutral Even If Govt Pressure-Sheard

The Bank of Japan will keep lifting interest rates towards a neutral setting to tackle inflation even if new political leaders are more assertive in calling for a pause, former visiting scholar and government adviser Paul Sheard told MNI. 

The current rate of 0.5% remains below the neutral mark of around 1.5% and the BOJ has already sent a message with its previous hikes and the abandonment of balance-sheet management, the former vice chairman of S&P Globalsaid in an interview Thursday in Washington. 

While the newly-elected leader of the ruling Liberal Democratic Party Sanae Takaichi wants to exercise the government's power to provide advice to the BOJ, Sheard argues that this would still be a healthier situation than that seen in the U.S., where the Federal Reserve has come under intense pressure from President Donald Trump.

“She’ll be able to say to her minister of finance … go into that next meeting at the Bank of Japan and tell them we the government want the Bank of Japan to hold interest rates down,” Sheard said. “My view is the Bank of Japan may be in the hot seat, but they have a job to do.” (See: MNI INTERVIEW: BOJ Dec Hike Possible - Ex-Chief Economist)

"Everybody in Japan is concerned about high prices. How do you deal with that? You bring inflation down, you don’t keep interest rates low to put more upward pressure on inflation,” he said. 

“That’s not hard for the Bank of Japan to explain,” he told MNI at IIF meetings where BOJ Assistant Governor Seiichi Shimizu later in the day also gave panel remarks. Shimizu said the Bank must be somewhat careful because of a shaky global economy and because it's unclear how Japan's economy will adjust to the monetary policy shift.