Boost money supply to fight deflation: U.S. official


A senior U.S. Treasury official suggested Thursday that Japan could tackle its deflation and bad-loan problems by boosting the money supply, emphasizing how important this step would be in keeping the nation’s monetary base strong.

John Taylor, treasury undersecretary for international affairs, told a news conference here that the Bank of Japan has made “good progress” in providing liquidity to the economy but that the efforts made so far have not been sufficient.

Regarding the BOJ’s decision to purchase bank-held company shares, Taylor said the move could be “a very good way” to help Japanese banks cope with their nonperforming loans.

Taylor will visit Tokyo from Sunday through Wednesday to hold talks with Haruhiko Kuroda, vice finance minister for international affairs.

The so-called Financial Dialogue forum is one of the forums created under the Economic Partnership for Growth, which was launched in June 2001 by Prime Minister Junichiro Koizumi and U.S. President George W. Bush.

Meanwhile, Glenn Hubbard, chairman of the White House Council of Economic Advisers, issued similar remarks in a speech at the Japan Society in New York.

Hubbard was upbeat about an antideflation policy package currently being drawn up by the Japanese government, but voiced concern on the deceleration of Japan’s money supply since April.