Hayami gives reassurances BOJ will fight deflation

Bank of Japan Gov. Masaru Hayami said Monday the central bank will do everything it can to fight deflation to pave the way for sustained economic growth.

During his opening address at a quarterly meeting of BOJ branch managers, Hayami said money markets have been stable due to the ample liquidity provided by the BOJ, and that the central bank is prepared to provide more liquidity in case of emergencies.

He voiced concern over the uncertain outlook for the economy, stemming partly from the stock market plunge.

“Japan’s economy has stabilized as a whole, but clear signs of recovery have not yet been observed, partly due to great uncertainty regarding the global economy,” Hayami said.

His assessment is in line with that unveiled by the central bank earlier this month.

The BOJ managers gathered in Tokyo to report on the state of the regional economies in which they are stationed.

Hayami said the movements of Japanese share prices have been uncertain against a backdrop of global decline.

“We need to carefully monitor the impact of share price falls on the real economy, the financial markets and the nation’s financial system,” he said.

Domestic share prices have plunged partly due to fears that the government’s plans to accelerate the disposal of bad loans held by commercial banks will exacerbate deflationary pressure and lead to the liquidation of financially troubled corporations.

Hayami’s assessment of the economy was generally shared by the branch managers, who attended the Tokyo meeting to report on the state of the regional economies in which they are stationed.

In reports submitted during the meeting, many of the managers stated their regional economies had stabilized due to improvements in both exports and industrial production. But they expressed concern over the murky prospects for the national economy.

Eiji Muto, general manager of the BOJ’s Osaka branch, told a news conference that several companies in Osaka, Nara and Wakayama prefectures are increasingly uncertain due to concerns over the U.S. economy and volatility of domestic and overseas share prices.

“There were voices about the uncertainties in July (when the previous quarterly meeting was held), and more people in the region are feeling their concerns are becoming a reality,” Muto said.

Regarding the disposal of bad loans, Hayami said the environment surrounding the nation’s financial system has become more severe because financial institutions’ health has weakened amid waning profitability.

“To overcome the bad-loan problem, it is critical to promote comprehensive steps, including a more precise assessment of the value of bad loans, early disposal of such loans, and enhanced profitability of both financial institutions and debtor firms,” Hayami said.