TOKYO - Harvard economist Kenneth Rogoff told Prime Minister Sanae Takaichi that Japan should respect the independence of its central bank to avoid unwanted increases in government bond yields, according to minutes of a government economic council meeting released on Wednesday.
The comments came at the governments top economic council meeting on March 26, where Rogoff was invited to assess Takaichis economic approach. The minutes say Rogoff warned that global trends in debt-funded government spending on items such as defence could push long-term Japanese government bond (JGB) yields higher in the years ahead.
Rogoff, who now teaches at Harvard University and previously served as chief economist at the International Monetary Fund, was quoted in the minutes as saying he "would not be surprised if long-term Japanese government bond (JGB) yields went up to 3% or even higher in the coming years," given the fiscal trajectories he observed internationally.
He suggested that having an institution independent from the government produce fiscal projections could help sustain market confidence in Japans finances. The minutes attribute to him a stronger point stressing the central banks role:
"Central bank independence, however, is even more important," Rogoff said. "Its precisely when markets are worried that youre doing things to push up interest rates (high deficits) or having to live with higher global interest rates that it can be very problematic if the central bank is perceived as being very subordinate to the government. For that can make long-term interest rates go up even more."
The minutes place Rogoffs remarks in the context of a broader discussion around Japans fiscal and monetary policy stance. The documents also highlight a contrast between Rogoffs warnings and Prime Minister Takaichis policy preferences.
Takaichi, described in the minutes as an advocate of loose fiscal and monetary policy, and her economic advisers have repeatedly expressed dissatisfaction with the Bank of Japans plan to raise interest rates from still-low levels, the minutes note.
The exchange recorded in the minutes underscores tension between government policymakers seeking more accommodative fiscal and monetary settings and warnings from some outside economists about the market effects if the central banks independence appears compromised. The minutes do not provide additional detail on any response from Takaichi during the meeting, nor do they add further comments from other council members beyond Rogoffs remarks.
Context note: The article reflects the content of the published meeting minutes and reports only the statements attributed to Rogoff and the characterization of Takaichis policy stance contained therein.