More monetary easing, bank assistance in the works, Hayami hints

Bank of Japan Gov. Masaru Hayami indicated Tuesday that the central bank may take additional monetary easing steps.

“We may have reached our limits to reduce interest rates, but we may have (additional) tools at hand,” Hayami said in an interview with NHK.

He also hinted the BOJ may take steps to support the government’s efforts to accelerate disposal of nonperforming loans at banks.

The central bank may devise additional measures in cooperation with the government, Hayami said.

The BOJ has decided to purchase shares directly from banks to shield them from fluctuations in share prices.

The purchases, to start around the end of this month, are designed to help banks speed up the disposal of institutions’ bad loans.

The BOJ will hold a Policy Board meeting Oct. 30. By that time, the government is expected to have compiled a set of measures to overcome deflation and speed up the disposal of nonperforming loans.

Hayami also reiterated that the government may need to consider injecting public funds into banks if necessary, although that step may not be necessary in the immediate future.

Crisis talks possible

Chief Cabinet Secretary Yasuo Fukuda said Tuesday the government will decide whether to call an emergency meeting to deal with a financial crisis after carefully monitoring major banks’ financial conditions.

“Our position of calling a meeting when needed remains unchanged,” Fukuda said at a news conference, referring to the recent stock market plunge and other changing economic conditions.

The government is to hold an emergency meeting to decide whether Japan is in a financial crisis that requires it to inject public funds into undercapitalized banks.

Prime Minister Junichiro Koizumi said he sees no need to call such a meeting at present, although the government would do so when the need arises.

“We will hold it when we see the need, that’s for sure. We don’t see such a need (now),” Koizumi told reporters.

Assessment stays as is

The Bank of Japan maintained its economic assessment for the third straight month, saying Tuesday that while the economy has stabilized, there are no clear signs of an economic recovery due to uncertainty hanging over the global economy.

In a rare move, the central bank mentioned the disposal of nonperforming loans at Japanese banks, saying it will keep a close eye on the effects that bad-loan disposal has on the stock market as well as the overall economy.

“Japan’s economy has stabilized as a whole, but clear signs of recovery have not yet been observed, partly due to a great deal of uncertainty regarding the global economy,” the BOJ said in its October report on economic and financial developments.

The central bank said that although exports and industrial production continue to rise, their pace of improvement is slowing.

“The uptrend in exports is expected to continue against the background of the moderate recovery in overseas economies, but the deceleration in the pace of increase is projected to continue toward the yearend, with the impetus from overseas restocking coming to a halt,” the BOJ said. “Thus, while industrial production is also expected to follow a moderate uptrend, the pace is likely to continue decelerating for the time being.”

Corporate profits are recovering and business sentiment as a whole continues to improve, it said.

However, the pace of improvement in business sentiment “has become gradual and the improvement for the immediate future is also expected to be small,” it added.

On the outlook of the economy, the central bank said, “It can be envisaged that Japan’s economy will gradually form foundations for recovery as overseas economies continue their moderate recovery.”

But it will take a while for the economy to show any clear sign of recovery thanks to decelerating exports and production, the BOJ said.

The central bank said downside risks to the economy are substantial due to a negative export environment and plunging share prices.

“There is great uncertainty regarding exports, such as the developments in stock prices in the United States and worldwide, the outlook for information technology-related demand, and geopolitical factors and oil prices,” the BOJ said.

It also noted that stock prices in Japan have fallen to a considerably low level.

“Hence, progress in the disposal of nonperforming loans at financial institutions hereafter and its effect on stock prices and the economy should be carefully monitored,” it said.