The Japanese government, caught in a controversy over allegations that it is pressuring the Bank of Japan to keep interest rates low, is coordinating to revise the monetary policy wording in its basic fiscal and economic guidelines, according to reports.
The Japanese government presented the ruling party a revised draft of its Basic Policy on Economic and Fiscal Management and Reform for fiscal 2026, known as the Honebuto guidelines, incorporating opinions within the party, Japanese media including the Nihon Keizai Shimbun and the Asahi Shimbun reported Monday.
The government is understood to have newly added the phrase "achieving stable price increases" in a paragraph of the Honebuto guidelines that refers to monetary policy. According to the Nikkei, the revised draft states that "to achieve a strong economy, appropriate monetary policy operations that contribute to achieving 'stable price increases' are extremely important." An earlier draft released May 30 had stated that "appropriate monetary policy operations are extremely important" for achieving the "strong economy" advocated by the cabinet of Sanae Takaichi.
The change is seen as intended to dispel market concerns over fiscal soundness and inflation stemming from the Takaichi cabinet's aggressive fiscal policy. The market had earlier viewed the government's Honebuto guidelines as strongly aimed at checking the Bank of Japan, which has shown a stance toward raising interest rates, and sold off government bonds en masse. In the bond market the previous day, the yield on 10-year government bonds, a benchmark for long-term interest rates, at one point rose to 2.850 percent, marking the highest level in about 30 years.
As the yen's decline accelerated as a result, the government stepped in to contain the situation, going as far as to consider revising the document. Minoru Kiuchi, Minister of State for Economic and Fiscal Policy, rebutted on Sunday the notion that the draft was being cited as a cause of rising interest rates, calling it "an interpretation that differs from the government's intent, and a misunderstanding."
Kiuchi stressed that the wording is "no different at all from the position the government has previously stated," and that there is no change in the government's stance that the specific means of monetary policy should be decided by the Bank of Japan. He explained that the Bank of Japan's benchmark rate hike last month was also carried out in accordance with the central bank's own policy stance.
Even so, questions remain over whether investors' anxiety will be resolved. In this Honebuto draft, the Japanese government removed the expression "fiscal consolidation," which had been used continuously since the first Honebuto guidelines announced by then-Prime Minister Junichiro Koizumi in 2001. The Nihon Keizai Shimbun had earlier reported that observations were emerging that the yen could weaken further to the 170-per-dollar range if the funding sources for the Takaichi cabinet's expansionary fiscal policy are not clearly revealed.
The Japanese government plans to approve the Honebuto guidelines at a cabinet meeting soon. Yujiro Goto, chief foreign exchange strategist at Nomura Securities, analyzed in a report that "if the wording related to monetary policy is revised, it could be taken as a signal that the Takaichi administration is becoming more mindful of the market, and could act as a positive factor for Japanese government bonds and the value of the yen."
