• Kyodo

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Eiko Shinotsuka, a member of the Bank of Japan’s Policy Board, said Thursday the BOJ should discuss the official discount rate in light of its ambiguous function in the central bank’s monetary policies.

“We need time to properly discuss the significance of the official discount rate,” Shinotsuka said at a press conference in Matsuyama, Ehime Prefecture. “There are some other board members who also question it,” she said.

It is the first time a BOJ Policy Board member has publicly mentioned the official discount rate — the rate the central bank charges to commercial banks.

The rate is at a historic low of 0.5 percent and has been there since September 1995. Since spring 1995, the BOJ has shifted its focus in monetary policy from the official discount rate to the key money market rate.

On Aug. 11 the BOJ left the official discount rate unchanged but ended its 18-month “zero-interest-rate” policy, which guided the unsecured overnight call rate, the fee commercial banks charge each other, toward zero.

BOJ Gov. Masaru Hayami has implied that the BOJ considers the unsecured overnight call rate as the key rate by describing the official discount rate as a “symbol.”

At a lecture in Matsuyama before the press conference, Shinotsuka expressed caution about the domestic economy and squashed speculation among some market players that there will be another credit tightening in the future.

“The economy is still saddled with serious structural problems, and we are only seeing a very mild pickup trend,” Shinotsuka said.

The BOJ’s policy will depend on “what kind of recovery path the economy will actually take and what kind of price movements we will see in the future,” she said.

It was the first lecture by a Policy Board member since the BOJ ended the zero-interest-rate policy. Shinotsuka was one of the first of the nine board members to advocate putting an end to it.

She said there are signs of improved personal consumption but warned of the need to address Japan’s structural problems, such as excessive debt overall and bad loans at financial institutions.

“The negative legacy is a problem that continues to weigh down the Japanese economy,” Shinotsuka said.

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