End zero rate policy, Miyazawa says

Finance Minister Kiichi Miyazawa indicated his support Thursday for the Bank of Japan ending its zero interest rate policy later this year if the Japanese economy begins a self-sustainable recovery.

“It’s possible for the BOJ to review its monetary policy” if the economy takes an expected turn for the better within a year, Miyazawa told reporters.

Miyazawa made the comment based on his interpretation of BOJ Gov. Masaru Hayami’s remarks the previous day suggesting the central bank will lift the zero rate policy later this year.

Miyazawa consulted with Hayami over the telephone Thursday evening. Earlier in the day, Miyazawa also met Prime Minister Yoshiro Mori to discuss economic management.

Miyazawa did not disclose the details of his talks with Hayami but they are believed to have exchanged views on Japan’s monetary policy management ahead of Saturday’s meeting of Group of Seven finance ministers and central bankers in Washington.

Hayami told a news conference Wednesday that deflationary concerns are likely to be wiped out unless current employment and income conditions worsen.

The BOJ maintains that it will end the zero rate policy when the Japanese economy is free of deflationary pressure.

Under the zero rate policy adopted Feb. 12, 1999, the BOJ steers the target rate for unsecured overnight call money as low as possible.

Miyazawa said the outlook for employment and income remains unclear, although economic activity is improving as a whole.

Some economists, including those at the International Monetary Fund, believe Japan still faces deflationary pressure, he added.

Nevertheless, Miyazawa expressed confidence that the economy will be able to return to a self-sustainable growth track.

“I’m confident we will be able to climb the cliff, so to speak,” he said.

The finance minister said the Japanese economy, though it may look miserable in the eyes of the United States, is regaining ground.

Miyazawa also repeated that the government will not have to implement a large-scale extra budget for fiscal 2000, which began April 1.

He declined to comment on exchange rate policy, which will be a major topic for discussion at the G7 gathering. The G7 consists of Britain, Canada, France, Germany, Italy, Japan and the U.S.

Hayami sees recovery

Bank of Japan Gov. Masaru Hayami said Thursday he sees some signs of recovery in the economy, supporting his remarks Wednesday that hinted at an end to the BOJ’s current zero interest rate policy in the near future.

The BOJ chief told a meeting of trust banks held in Tokyo: “The economy has gradually turned around and clearly has been picking up these days. Regarding private-sector demand, some signs of recovery have begun appearing, including an upturn in capital investment, however moderate.”

Hayami again indicated the central bank is preparing to lift what he called the “extraordinary measure” of driving the key overnight call rate as low as possible. The policy was adopted in February 1999.

“With respect to prices, the deflationary concern seen at one time is receding,” he said.

In a related development, the BOJ on Thursday unveiled the minutes of a March 8 monetary policy meeting in which many of the nine members of its Policy Board agreed that the economic environment surrounding private demand has continued to improve.

Although many members were of the opinion that “deflationary concern had not been dispelled yet,” the risk to private consumption from lower household incomes was seen to be gradually subsiding, the minutes show.

A few members mentioned that private consumption could increase if a rise in corporate profits leads to a boost in summer bonus payments but many said the extent of such a boost would be hard to forecast as firms have continued to limit personnel costs.