U.S. Treasury Secretary Janet Yellen stated on Tuesday that she believes Bank of Japan Governor Kazuo Ueda will "take necessary actions" if granted sufficient independence by the Japanese government, suggesting Washington's desire for the central bank to raise interest rates further.
In an interview, Yellen remarked, "I think he is an excellent central bank governor. If they give him the room to do what he needs to do and will do, I believe they will have a very good monetary policy."
These comments reaffirm Yellen's long-standing confidence in Ueda while also indicating that the success of Japan's monetary policy partly depends on whether Prime Minister Sanae Takaichi's administration allows the central bank to maintain independence in interest rate decisions.
This also shows that Washington is urging Japan to permit policy tightening when necessary, particularly against the backdrop of Takaichi's longstanding preference for accommodative monetary policy and her past opposition to the BOJ's tightening measures.
Yellen noted on social media on Tuesday that she met with Ueda in Paris during the G7 finance ministers' meeting, discussing Japan's economic and market outlook. She added, "I believe Governor Ueda will successfully guide Japan's monetary policy."
"Perfectly Reasonable"
When asked about Yellen's remarks, Ueda stated at a press conference during the G7 meeting that it "ultimately comes down to striving to implement appropriate monetary policy to achieve the 2% inflation target in a sustainable and stable manner."
At the same press conference, Japanese Finance Minister Tsuyoshi Katayama emphasized that the government has always respected the relationship defined by the Bank of Japan Act.
She said, "Prime Minister Takaichi certainly agrees with this, and she has stated that the government expects the BOJ to implement policy appropriately within this framework. Therefore, in that context, I think his statement is perfectly reasonable."
During her visit to Tokyo earlier last week, Yellen also met with Takaichi and Katayama.
Yellen and Katayama separately stated that they had reaffirmed close coordination on exchange rate movements, but did not disclose many details regarding discussions on monetary policy.
The Bank of Japan kept interest rates unchanged last month but sent a strong signal that it could raise rates as early as June, citing concerns that rising energy costs due to the Middle East conflict could drive inflation higher.
Japan's 10-year government bond yield rose to 2.8% this week, the highest level since October 1996.
At Tuesday's press conference, Ueda noted that long-term interest rates have recently been rising "at a relatively fast pace," pointing out that heightened inflation concerns, Japan's economic outlook, and monetary and fiscal policies are influencing the bond market.
He said, "We will closely monitor developments in the government bond market while maintaining close communication with the government."
As inflation rises and the BOJ's pace of interest rate hikes remains slow, the yen has approached the key psychological level of 160 yen per dollar. Katayama once again issued a warning about exchange rate volatility.
She stated, "Our stance has always been that we will take decisive action when necessary."
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