Bloomberg News

Government Plan Pledges Cooperation With BOJ to Combat Deflation

July 25, 2012

A panel charged with outlining the Japanese government’s growth strategy has updated a final draft plan with a pledge to work with the Bank of Japan to combat deflation and the strong yen.

The strategy, which will be reflected in next year’s national budget, calls for spending to focus on clean energy, health and agriculture, according to a copy of the draft obtained by Bloomberg News. The ruling Democratic Party of Japan will probably approve the document by the end of next week and send it to the cabinet, Kohei Otsuka, who sits on the DPJ’s financial and fiscal policy panel, told reporters yesterday.

“As well as working closely with the BOJ to do all in our power to combat deflation, we will use all possible policies to prevent a vicious cycle of a rising yen and deflation,” the government said in the document.

The Japanese yen hit a postwar high of 75.35 per dollar on October 31 and traded at 78.19 yen to the dollar at 6:52 p.m. in Tokyo yesterday, with Europe’s sovereign debt woes boosting its appeal as a haven for investors. A strong yen cuts the value of Japanese exporters’ profits.

The Bank of Japan (8301) “will not hesitate” to loosen monetary policy should the world’s third-biggest economy face shocks that weaken its outlook, Bank of Japan Deputy Governor Hirohide Yamaguchi told business executives yesterday in western Japan.

To contact the reporter on this story: Isabel Reynolds in Tokyo at ireynolds1@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net


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