Hayami tosses hot potato to G7

BOJ chief gets global advice on end to zero-rate policy

Compiled from staff, wire reports Remarks this week from the Bank of Japan suggesting it may lift its zero interest rate policy by yearend have propelled the issue to the top of the agenda for Saturday’s meeting of Group of Seven finance chiefs in Washington.

BOJ Gov. Masaru Hayami’s comments on the possible end of the 14-month old policy, which came during a regular news conference Wednesday, has beehives buzzing both at home and abroad.

In Washington on Thursday, U.S. Treasury Secretary Lawrence Summers warned against a policy shift by Japan, apparently to keep Tokyo and the BOJ in check after the rattling comments.

Briefing reporters ahead of the G7 meeting, Summers said, “The continuing policy priority (in Japan) has to be on raising domestic demand-led growth.”

Any shift from that goal would pose “an unnecessary risk” for the global economy, Summers said. In recent days, he has reiterated calls for Tokyo to continue to implement all policy tools necessary until solid domestic demand is secured.

Finance Minister Kiichi Miyazawa on Friday lamented that Hayami’s comments “have given him a headache” ahead of the G7 talks.

The remarks are almost certain to put Japan up against the ropes at the G7 meeting, according to Miyazawa.

The United States and the International Monetary Fund believe it would be premature to rescind the zero-interest policy because fears of deflation have not yet abated, Miyazawa said.

The issue is expected to complicate the G7 discussions; Japan is hoping that its partners will agree on the potential damage a stronger yen could do to the Japanese economy, but lifting the zero interest rate policy could increase the yen’s value against the dollar.

Hayami’s remarks have also provoked a strong reaction from the IMF.

Earlier Thursday in Washington, IMF acting Managing Director Stanley Fischer told a news conference, “It’s hard to see any good reason for monetary policy to tighten up.”

Coincidentally, the IMF this week revised downward its projection for Japan’s economic growth for the current calendar year to 0.9 percent from its 1.5 percent forecast in October.

Hayami’s comments came as the BOJ painted a rosier picture for the state of the economy in its most recent monthly assessment.

The central bank has said it would review the policy if it sees the economy freeing itself from deflationary pressure, and Hayami said that deflationary concerns are ebbing.

Meanwhile, the No. 2 man of the ruling Liberal Democratic Party, Secretary General Hiromu Nonaka, has lauded Hayami’s comments.

With general elections widely expected to be held as early as June, many politicians are becoming increasingly sensitive about the negative impact of the central bank’s easy monetary policy as it enters its 15th month.

Some lawmakers have voiced concern that the policy is hurting pensioners and others who rely on the interest on their deposits to make their savings go further.