The question of whether Japan should follow the United States and make its central bank legally independent is heating up in Tokyo.
The issue has intensified after leaks of squabbling between the Bank of Japan and the Finance Ministry helped force a dive in the yen, something wanted by neither Japan nor its trading partners.The problem is basic: Governments prefer lower interest rates, which help economic growth, while the priority of central bankers is to control inflation, which sometimes means raising the rates.
"The Bank of Japan should assert more independence in its monetary policy and its fight against inflation. This is what markets around the world want to see," said Johsen Takahashi, chief economist at Mitsubishi Research Institute.
Officials at the Finance Ministry and the Bank of Japan deny the central bank's monetary policy has been distorted by government pressure. They say monetary policy is the absolute preserve of Japan's central bank.
But many believe the Bank of Japan is heavily influenced by the powerful ministry, which restricts the bank's independence through a 48-year-old law granting it controlling power over the bank.
"That's really a legal problem. Without changing the current law, we can never expect the BOJ to conduct a truly independent monetary policy," said Shinji Kawaguchi, professor emeritus of finance at Osaka University.
The law's structure, which lets the ministry and bank take turns appointing the bank's governor each five years, allows the ministry to meddle in the bank's business and often delays timely monetary policy action, Mr. Kawaguchi said.
Whenever the bank alters its basic policy, such as its key discount rate, it goes through detailed, lengthy consultations with the ministry that often may be leaked to markets, said a former senior bank official, who requested anonymity.