FUKUOKA — U.S. Treasury Secretary Lawrence Summers suggested to Finance Minister Kiichi Miyazawa on Saturday that Japan should stick to its present sound monetary and fiscal policies to lift its economy out of recession, a senior Japanese official said.
Summers stopped short of making demands concerning Japanese economic policies, however, including the closely watched Bank of Japan’s monetary policy, the official told reporters.
Monetary, fiscal and structural policies are crucial to Japan, Summers was simply quoted as saying.
The remark is being interpreted as an expression of his hope that the “zero-interest-rate” policy will remain unchanged for the time being, as the official said Summers did not put forward alternatives to Japan’s current policies.
The finance chiefs met for 45 minutes at a local hotel before the conference of finance ministers from the Group of Seven economic powers started with an official luncheon.
The bilateral meeting attracted a great deal of attention, coinciding with mounting speculation that the BOJ’s controversial interest policy could be lifted as early as July 17, the next meeting of the bank’s policy board.
In what can be taken as pre-emptive move to stall any U.S. demands concerning the interest rate policy, Miyazawa emphasized that the bank’s policy board — not the government — is solely responsible for monetary policy. He even went as far as to explain the composition of the nine-member policy board, where a change in policy is decided with a vote.
Speaking at a news conference later in the day, Summers again refrained from making any demands concerning Japan’s monetary policies, saying that he respects Miyazawa’s position to respect the independence of the Bank of Japan.
“I both respect the independence of central banks and respect the respect of independence of central banks,” Summers said.
“But I don’t want to be in a position of trying to comment on anything (Miyazawa) may or may not have said,” Summers told reporters, responding to a question about to whether he and Miyazawa shared the same opinion on Japan’s monetary policy.
He also reiterated his belief that Japan should make sustained, domestic demand-led growth its top priority.
During their meeting, Miyazawa told Summers that the Japanese government may decide its next fiscal step — including possibly the preparation of a supplementary budget — in early September when the latest gross domestic product data is due to be released, the official said.
The bilateral talks were mostly devoted to the Japanese economy while the U.S. economic situation was not broached, the official said.
here is growing speculation that the central bank will soon lift its long-held policy that keeps interbank lending rates close to zero, as improvements have been recorded in Japan’s economy, primarily in the corporate sector.
But some caution that it would be premature to take the action because deflationary risks have not disappeared completely, as unemployment remains high and personal consumption is still weak.
Earlier Saturday, Miyazawa told German Finance Minister Hans Eichel that the success of reform of the banking sector in Japan hinges on whether institutions are able to follow through with merger plans that they have announced.
Miyazawa met with his German counterpart for about 30 minutes Saturday morning. hen Eichel asked how reform of Japan’s banking institutions is faring, Miyazawa explained that the legal framework for reform has been put in place and that there are several moves toward mergers and alliances, a Japanese official told reporters.
“The question is whether (these mergers) will be followed through,” Miyazawa was quoted as saying. The finance chief cited Japanese corporate culture as a potential stumbling block, the official said.
Commenting on the European economy, Eichel was quoted as saying that the region will remain strong if the U.S. economy — which has enjoyed several years of expansion but has recently shown signs of a slowdown — manages a “soft landing.”
Eichel went on to say that European integration is progressing well, adding that even countries in the Middle East have expressed a strong interest in joining the union.
The two officials did not touch on the Bank of Japan’s “zero-interest-rate” policy, which could be lifted as early as this month, or Japan’s monetary policy in general, the Japanese official said.