WASHINGTON, Jan 14: Japanese Finance Minister Sadakazu Tanigaki said on Friday he did not expect the government to oppose any Bank of Japan decision to end its ultra-loose monetary policy, suggesting he trusted the central bank’s judgment.

Tanigaki forecast Japan’s seven-year deflation to end in 2006, and added that the government and central bank needed to keep in close contact to ensure there was no major discrepancy in their view of prices.

As of now, I do not foresee us making an opposition, Tanigaki told a small group of reporters in Washington, when asked about the government’s likely reaction to a change in monetary policy.

Latest data show the core consumer price index rose 0.1 per cent in November from a year earlier, signaling an end to deflation and raising expectations for an end to the BoJ’s super-easy policy.

Basically, we need to keep comparing our assessments. There shouldn’t be a big difference, Tanigaki said when asked about the government and BoJ’s views.

Asked when he thought deflation would end, he said:

I think it will happen during this year. It’s not a judgment that should be rushed.

The BoJ has vowed to maintain its easy monetary policy until year-on-year changes in the core consumer price index (CPI) stabilize above zero per cent.

The recent rebound in CPI, along with a recovering economy and surging stock market, has reinforced expectations the BoJ would soon ditch its ultra-loose monetary policy, known as “quantitative easing, by mid-2006.

The Japanese government is wary that a premature reversal of the BoJ’s accommodative stance could ruin Japan’s chances of a full-fledged economic recovery and hamper its own efforts to trim public debt.

Tanigaki said he expected no imminent change in the BoJ’s monthly buying of long-term Japanese government bonds.

He also said the government would continue monitoring the foreign exchange market after some volatility around the new year, and reiterated the government’s standard line that rates should reflect fundamentals.

The markets did show some wild moves around the year end and the beginning of this year, partly due to low trading volume, he said. It was pretty rapid. We must continue watching moves.

Sentiment on the dollar has deteriorated since the year-end on perceptions that the US Federal Reserve’s rate rise campaign may end soon.

A rise in the yen could hurt Japanese exporters, but so far Tanigaki and other MOF officials have not shown any urgent desire to intervene.

He has said he did not discuss dollar/yen exchange rates in meetings with US officials including Treasury Secretary John Snow.

Tanigaki’s week-long visit, a marathon of meetings with top US officials ranging from U.S. Secretary of State Condoleezza Rice to US Federal Reserve Chairman Alan Greenspan, has been seen as an attempt to boost his profile ahead of a leadership race in Japan later this year.

He is widely considered a contender for the head of the ruling Liberal Democratic Party — a job that carries with it the prime minister post. Prime Minister Junichiro Koizumi steps down in September.

Tanigaki said he discussed Chinese currency policy with US officials, emphasizing that Japan shared their concerns over limited flexibility in the yuan.

Tanigaki raised the issue with Deputy Secretary of State Robert Zoellick on Friday, as he did with Vice President Dick Cheney earlier in the week, a government official said.

US officials say the yuan is seriously undervalued and gives Chinese goods an unfair advantage in global markets.

Japanese officials have been less vocal in pushing for change in Chinese policy, but Tanigaki has said a more flexible currency would help China better manage its economy, mitigating potential risks to the global economy.

China revalued the yuan in July by 2.1 per cent and dropped a dollar peg, deciding instead to manage its value with reference to a basket of currencies. The yuan has consistently trended higher since then, but only in minuscule steps. —Reuters