By Noriyuki Suzuki,
The government dropped its calls for the Bank of Japan to pursue a "bold monetary policy" in its monthly report, after the central bank raised interest rates for the first time in 17 years in the belief that the country is on track to attain its inflation goal.
While maintaining its assessment of the Japanese economy from the previous month, the government also continued to stress the need to end deflation and pledged to work closely with the BOJ to ensure "flexible policy management."
March's report is the first since the BOJ announced on Tuesday the end of its unorthodox monetary easing policy, which has been maintained over the past decade in an effort to tackle Japan's chronic deflation.
Previously, the government said it "expects" the BOJ to attain its 2 percent inflation target sustainably and stably, noting it will "promote bold monetary policy, flexible fiscal policy, and a growth strategy."
But the latest report by the Cabinet Office said, "The government and the bank will continue to work closely together to conduct flexible policy management in response to economic and price developments."
In 2013, the BOJ rolled out a slew of powerful monetary easing steps that formed the backbone of the "Abenomics" program under then Prime Minister Shinzo Abe, which sought to boost the economy's growth.
Economic revitalization minister Yoshitaka Shindo said the government aims to deploy "all available tools" to strengthen the economy by promoting wage hikes and investment.
"What we want to create is a situation in which there is no prospect of (Japan) going back to deflation," Shindo told a press conference. "Our decision (on whether to declare an official end to deflation) won't come just because monetary policy changes."
While the first but small rate hike since 2007 was seen as symbolic, the BOJ has said financial conditions will remain accommodative, given the current outlook on the economy.
Financial markets have interpreted the BOJ's messaging as dovish, weakening the yen against the U.S. dollar, even though the U.S. Federal Reserve is expected to start cutting rates this year after two years of rapid rate hikes to tamp down price increases.
In the March report, the Cabinet Office retained its view on the economy for the second consecutive month, saying it is "recovering at a moderate pace, although it recently appears to be pausing."
But the office was more upbeat about capital spending, a key component of domestic demand, saying that it is showing signs of "picking up" in its first upgrade in 17 months.
The brighter view came after stronger-than-expected capital investment by Japanese firms led to an upward revision of Japan's gross domestic product data for the last quarter of 2023, helping the economy avoid registering two straight quarters of negative growth, which is considered a technical recession.
Another change was made to imports, which the office said are in a "weak tone," the first downward revision since January 2023.
Other major components of the economy, including private consumption, exports and industrial production, were maintained.
The office retained its overall assessment of the global economy for the 11th straight month, saying it is "picking up despite weakness in some regions."
Related coverage:
Japan's core inflation accelerates again to 2.8% in Feb.
Japan watching foreign exchange moves with urgency: finance chief
FOCUS: BOJ turns page on Abenomics, giving reeling Kishida election hope
