Bank of Japan Gov. Masaru Hayami reiterated Monday the need to overhaul the economy, with improvement of the now-stagnant business conditions and reform in the financial system as the two keys to revival.
At a quarterly meeting of BOJ branch managers nationwide held at the central bank’s headquarters, Hayami expressed concern over the recent decline in consumer demand and in firms’ production and employment offers.
“Looking at the movement of the Japanese economy these days, business conditions have worsened while pessimism has prevailed over the financial system,” he said. “These are the two issues that must be dealt with immediately and all at the same time.”
Hayami expressed hope that the government’s “bridge bank” scheme adopted last week to deal with the bad loan woes of commercial banks will help regain domestic and international trust in the economy. “(Under the government’s financial reform efforts) banks are urged to remove their nonperforming loans from their balance sheets,” he said. “For that, banks should further disclose information and try to adapt to the new business environment.”
The BOJ for its part will do its utmost to promote such efforts by banks so the country’s financial system can regain credibility, Hayami said. He said the government’s remedy packages are expected to strengthen the confidence of companies and households, thereby slowing the so-called downward spiral of production, income and expenditure.
To accelerate the revival process, the BOJ will maintain its current monetary policy, Hayami said, indicating the official discount rate will be kept at its current historic low 0.5 percent.
Most of the branch managers reported that business conditions in their regions were still bad, and they were reluctant to state that conditions have hit bottom. “Executives of major companies in the Osaka area said they expect the economy to return to a recovery path in the second half of this fiscal year,” the Osaka branch manager, Eiichiro Kinoshita, said after the morning session. “But I cannot see any signs of recovery yet.”
Sapporo branch chief Michio Yoneda told a news conference in the evening that Hokkaido is stagnant amid continued uncertainty over the future course of the economy and deterioration in employment conditions.
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