The timing is drawing nearer for the Bank of Japan to abandon its zero-interest-rate policy, BOJ Gov. Masaru Hayami indicated Wednesday.
In a regular news conference, Hayami said that the nation’s economic condition is improving, adding that it is getting closer to a point where “the dissipation of the threat of deflation is in sight” — the BOJ’s self-proclaimed prerequisite for raising interest rates.
Hayami said the 10 percent annualized growth in the nation’s gross domestic product for the January-March period, announced last Friday, was “quite high.” In response to the GDP announcement and recent government statistics, the bank has slightly upgraded its assessment of corporate investment in plants and equipment, he said.
He also reiterated the bank’s stance that the 16-month-old, zero-rate policy — under which private banks are allowed to raise short-term funds effectively for free — is an “emergency measure launched under abnormal circumstances.”
But Hayami pointed out that it would be premature to end the policy now, saying the central bank needs to monitor progress in personal consumption — another key factor in determining whether the economy is back on a solid private demand-led recovery — before ending the zero-rate policy.
“We would like to abandon the zero-rate policy and regain flexibility in our monetary policy, (but) only if we can confirm that the dissipation of the threat of deflation is in sight,” Hayami said.
In the bank’s June report on economic and financial developments, released earlier in the day, the BOJ confirmed that corporate investment is “increasing,” a slight improvement from the previous month’s assessment that it continued to “increase gradually.”
On personal consumption, the report said: “While there seems to be no substantial change in firms’ stance to reduce personnel expenses, an improvement in households’ income conditions, which should support private consumption, is likely to be moderate at most.”
This view compares favorably with the previous month’s assessment, which said: “It may take some time for households’ income and, in turn, for private consumption, to recover.”