In response to growing pressure both at home and abroad for further monetary easing, Bank of Japan Gov. Masaru Hayami said Wednesday the central bank will not consider adopting an inflation target or other measures until the economy begins to pick up.
“It is not time for the BOJ to make the next move,” Hayami said. “The financial system is stable due to ample money from the BOJ. We will think about additional easing, if it is necessary when the economy starts to move.”
Nor is the central bank currently considering adopting an inflation target that would require the BOJ to commit to a certain price level or degree of inflation, he added.
The measure, advocated by Heizo Takenaka, minister for both economic and fiscal policy as well as financial services, may be appropriate in times of runaway inflation, but not when prices are slowly falling, the BOJ chief said.
The next moves are up to the government and the private sector — to speed up bad-loan disposal while strengthening a safety net for a possible rise in bankruptcies and unemployed, Hayami suggested.
“The bad-loan problem is worse than ever,” he said, adding that speedy bad-loan disposal should come hand in hand with structural reforms, tax reform and deregulation.
“But structural reforms must be carried out so that the accompanying pain is not so serious” that it prevents long-term reforms, he said. “We have traditions, and among small and medium-size banks in regional areas” it may be difficult to push through drastic reforms.
Last week, the BOJ’s policy-setting board voted unanimously to leave its monetary policy unchanged.
The decision was made amid calls for “further cooperation” by the central bank, with senior Cabinet members calling on the BOJ to pump further excess funds into banks’ current-account deposits at the central bank, buy more long-term Japanese government bonds, or commit to an inflation target.
“The BOJ has always been one step ahead in its monetary easing,” Hayami said. “I think you will find that our measures will become extremely effective,” once progress is made in reforms.
Loan safety nets eyed
A top government economic panel will focus on ways to establish safety nets for dealing with any fallout from the disposal of bad loans, Heizo Takenaka, economic and fiscal policy minister, said Wednesday.
The Council on Economic and Fiscal Policy, scheduled to meet Thursday, is in the process of compiling a set of steps to combat deflation and tackle nonperforming loans.
“I will ask welfare minister Chikara Sakaguchi to attend the meeting,” Takenaka said after speaking with Prime Minister Junichiro Koizumi. “We will hold discussions on a comprehensive package that will address issues such as employment and small and midsize companies.”
Investors’ worries that the government’s new drive to accelerate the disposal of bad loans could lead to a rise in the number of bankruptcies and unemployment have weighed heavily on stock prices.
Takenaka hinted that no major decision would be made in Thursday’s meeting on how to dispose of bad loans, saying, “I will report the course of events, and related ministers will exchange their views on the subject.”
Asked whether a supplementary budget for fiscal 2002 will be included in the package, Takenaka said, “I think what we must first do is discuss what steps are necessary to fight deflation.”
The entire package is expected to be completed by the end of this month.