The Bank of Japan decided to keep its monetary policy unchanged Friday, despite strong pressure earlier in the week from politicians and the Finance Ministry for further easing.
The BOJ decided to keep target bank reserves at the central bank at 5 trillion yen during its regular two-day Policy Board meeting, which ended Friday.
Since March, the central bank has been pursuing an ultraloose policy, which pushes overnight interest rates down toward zero by making sure that banks hold large reserves of surplus funds.
Politicians clamored for a looser monetary policy earlier this week after new economic data showed the nation falling into a new recession.
The Finance Ministry downgraded its assessment of the economy to “deteriorating” earlier this week, while government data show that gross domestic product shrank during the January-March quarter.
Koizumi distances self
Prime Minister Junichiro Koizumi said Friday he will respect the Bank of Japan’s decision to keep its monetary policy intact, distancing himself from growing political pressure on the central bank to take further measures to prop up the ailing economy.
“I want to respect the Bank of Japan’s judgment,” Koizumi told reporters at his official residence.
Takenaka presses on
Heizo Takenaka, minister in charge of economic and fiscal policy, has urged the Bank of Japan to be ready to use its grip on money to help the government “proceed with structural reforms” in the event of a further economic slowdown.
Takenaka told a news conference Friday that he made the request earlier in the day at the meeting of the BOJ Policy Board, which ended its two-day meeting with a vote to keep its easy monetary policy unchanged.
He said he told the panel, “It is necessary for us to marshal all policy resources to proceed with structural reforms at a time when the economy is deteriorating, so I pin high hopes on the Bank of Japan’s monetary policy.”
Takenaka attended the meeting of the nine-member Policy Board for the first time.
He briefed the board members on the outline of draft policy proposals to be finalized by the Cabinet Office’s Council on Economic and Fiscal Policy by the end of this month.
He said he told the board meeting, “I want you to take flexible and quick countermeasures within the new framework of policies adopted in March by the Bank of Japan.”
At that time, the BOJ adopted the quantitative monetary policy of keeping the level of reserves in current accounts held by financial institutions at the BOJ at around 5 trillion yen.
The central bank also adopted the policy of introducing the speedy “Lombard-style lending” to banks that seek its help with fundraising difficulties.
Some analysts say these policies are aimed at keeping banks from defaulting on debts in times of financial contingency.
Takenaka also said Cabinet ministers in charge of economic policy agreed at a meeting earlier in the day that banks have made insufficient progress in disposing of bad loans and that stronger measures are needed to accelerate disposal.
“We exchanged opinions on how we could ensure that banks assess the quality of their loan assets accurately,” Takenaka said.
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