The government's chief spokesman said the two did not
touch on currency intervention either, disappointing markets which had expected
a bolder policy response or even a signal of one after the yen's surge to
15-year highs earlier this month.
"There is a sense of disappointment and it is in
doubt whether anything was decided," said Hideki Hayashi, global economist
at Mizuho Securities' fixed income research department.
Bond yields have fallen and the yen has pared gains in
recent sessions on speculation the BoJ may try to pre-empt government pressure
for action and further loosen its already ultra-easy policy at an emergency
meeting before or shortly after the talks between Shirakawa and Kan.
"They exchanged views on the economic and financial
situation including foreign exchange," Chief Cabinet Secretary Yoshito
Sengoku told a news conference on Monday. "They agreed that it was
important for the government and the BOJ to communicate closely with each
other."
Sengoku added that the government wanted to consider
whether Kan and Shirakawa should meet in person, although he did not give a
timeframe.
Kan did not make any request on monetary policy to the
central bank chief, a BoJ source said.
Sources had told Reuters that Kan and Shirakawa may meet
on Monday to craft a response to the surging yen which is trading around at its
highest level against the dollar since 1995, threatening to dent Japan's
export-reliant economy.
But sources say the BOJ is unlikely to act before its
next regular policy meeting on Sept. 6-7 unless the yen heads toward its
all-time high past 80 to the dollar at a pace of 2 to 3 yen per day.
Mizuho's Hayashi said the chat was also part political
performance ahead of a Sept. 14 ruling Democratic Party of Japan (DPJ) DPJ
leadership vote, in which Kan could face a challenge from party powerbroker
Ichiro Ozawa, or a proxy candidate.
Growth in Japan's economy slowed to a crawl in the second
quarter and analysts see more weakness ahead as the U.S. recovery sputters.
The government is trying to compile a package of measures
by early September to support the economy by early September, which may include
extending the deadline for subsidies on energy-efficient electronics and homes
to encourage more consumer spending.
A senior Democratic Party official said the ruling party
hopes to compile proposals on the package by Aug. 26, which will be reflected
in the government's stimulus plan.
While some lawmakers are calling for big spending, the
government is likely to use money redirected from other areas to fund the
stimulus measures given Japan's dire fiscal straits, making any positive impact
on the economy minor.
Government bond yields at the short end of the curve
eased and the yield curve flattened last week as investors priced in the chance
that the BoJ could ease policy in an attempt to help combat yen strength and
support the economy.
The two-year bond yield, most sensitive to monetary
policy, hit a five-year low of 0.110 percent last week barely above the BoJ's
policy rate of 0.1 percent, a sign many investors are already factoring in
further monetary easing.
The most likely next step by the BoJ is to expand a
fund-supply tool it put in place in December last year, and already expanded
once in March, under which it offers up to 20 trillion yen ($233.6 billion) in
three-month loans at 0.1 percent.
