The Japan Trade Union Confederation (Rengo) called on the Bank of Japan on May 21 to give up its current easy monetary policy, saying it is having a detrimental effect on the economy.

Representatives of the nation’s largest umbrella labor organization met with Toshihiko Fukui, senior deputy governor of the central bank, and expressed their desire to see the central bank swiftly bring interest rates to “proper levels.” The BOJ’s key discount rate has been kept at a record-low 0.5 percent since September 1995 in an effort to stimulate the economy by encouraging more corporate and housing investment.

But Rengo maintained that while such objectives have on the whole been achieved, it was at the expense of depositors and pensioners dependent on income from interest on their savings. Consumer prices began rising with the 2 percentage point hike in the consumption tax that began in April, it said, adding that a prolonged easy monetary policy threatens to reduce workers’ savings in real terms.

The BOJ responded that while it understands the position of depositors and pensioners, it will maintain a monetary policy that will solidify the foundations of the current economic recovery. Cautious consideration of all aspects of monetary policy, including the timing of possible changes, is necessary, they said.

Rengo’s call came on the heels of demands by some ruling Liberal Democratic Party lawmakers for the BOJ to raise its key discount rate. On May 20, the legislators voiced concern over the adverse effects on pensioners and the possibility that the nation’s savings may be shifted to overseas markets where interest rates are more favorable. Revisions to the Foreign Exchange and Foreign Trade Control Law that take effect next April will make such investment easier.

Prime Minister Ryutaro Hashimoto was apparently angered by the moves of the LDP lawmakers. He reportedly told the Lower House Finance Committee that he has to question the wisdom of a politician making comments on what to do with the discount rate, which he said is entirely the domain of the central bank. He was referring to comments made May 20 by Koko Sato, head of the LDP’S task force on administrative reform, who indicated that his panel will ask the government to seek a hike in the discount rate.

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