Speaking at the World Economic Forum in Davos, Akira Amari said the Bank of Japan had “voluntarily” decided with the government to introduce a new inflation target in a bid to boost the world’s third-largest economy.
The new government in Tokyo, led by Prime Minister Shinzo Abe, has pushed the Bank of Japan (BOJ) to be more aggressive in its actions to battle nearly two decades of deflation and sluggish growth.
The BOJ on Tuesday unveiled a new inflation target of two percent and a massive programme of asset purchases to pump money into the economy, sparking accusations that central bank independence had been compromised.
No less an authority than German Chancellor Angela Merkel told Davos on Thursday that she was “not without concern” about Japan’s actions.
“As regards the new proposal, you might say that it might undermine the independence of the BOJ. In the case of Japan so far, there has not been any undertaking to share the inflationary targets with the central bank,” Amari said.
“This time for the first time, we came to an agreement of a two-percent inflation target that is around the international level,” the minister added.
The policy has also led to a steady decline in the value of the yen against other currencies — boosting exports — but other countries have expressed concern that Tokyo is pursuing a beggar-thy-neighbour approach.
Amari declined to comment on the current level of the yen, which has fallen steadily since the new policies were unveiled, saying that it was “for the markets to decide” the exchange rate.
The head of Organisation for Economic Cooperation and Development (OECD), Angel Gurria, told the same panel that it was a “fine line” to walk between defending your currency and putting trading partners at a disadvantage.
He noted that countries like Japan — he also mentioned Brazil, South Korea, Mexico, Chile, China and India — were places that attract investors during periods of uncertainty on the financial markets.
This causes the currency to rise, sometimes requiring action to bring it back to a more normal level, Gurria said.
“There is a certain legitimacy in terms of trying to defend yourself from the onslaught,” the OECD chief said.
“The only question is where do you draw the line between what is genuine self-defence and then something that would be a beggar-thy-neighbour policy? This is a thin line and it’s a difficult line to walk,” he added.
Mark Carney, governor of the Bank of Canada, hit back at this interpretation, saying that the group of seven leading industrialised countries had agreed not to intervene to affect the level of their currencies.
“There is an understanding within the G7 that has existed for the benefit of the global economy that there is not unilateral currency intervention,” he insisted.
Christine Lagarde, the head of the International Monetary Fund, was more circumspect, saying the IMF was “very interested by those policies”.
However, she added: “We certainly would like them to be complemented by a medium-term plan that includes how that debt will be reduced going forward.”