Bank of Japan Gov. Masaru Hayami on Tuesday dismissed speculation that the central bank plans to inject more money into the economy in the near future.
Comparing the economy to an ailing plant, Hayami said, “It is doubtful how effective giving more water (liquidity) to the plant would be. It might even be harmful.”
The governor indicated that the central bank would not ease its ultra-loose monetary policy while concrete steps toward structural reform have yet to be drawn up.
“If the plant does not grow even after being doused with water, it means there are other reasons: It might be the soil, or there might not be enough light,” he said during a regular news conference.
The BOJ adopted a blanket policy to cover considerable downturns in the economy when it decided to supply banks with a flood of surplus funds that have driven interest rates close to zero, Hayami said.
The BOJ has continued to emphasize the importance of structural reform over further easing, despite renewed pressure from politicians and the Finance Ministry for the BOJ to increase the surplus supply of money in banks’ reserves at the central bank. Recent government data shows the economy is close to falling into a recession again.
“Overseas, there are calls for us to print more money, but we know best about Japan,” Hayami said. “Sure, if money flows abroad, overseas (market players) might be happy about that, but to think that the Bank of Japan would increase liquidity for that reason is absolutely ridiculous.”
The BOJ will adopt “appropriate monetary policy” if information technology-related industries or overseas economies show unexpected downturns, or if the central bank determines that Prime Minister Junichiro Koizumi’s reforms will cause numerous bankruptcies, he said.
“The economy is flooded with funds; further liquidity at this time is unnecessary,” Hayami said, adding that more money will not lead to growth while credit demand remains low.
The Financial Services Agency said Tuesday it will allow banks to own equity stakes of more than 5 percent in nonfinancial borrowers if they swap claims on loans to corporations with shares in them to help their restructuring efforts.
The swap rule is part of a set of guidelines devised in line with a government emergency economic package released April 6, the nation’s top financial regulator said.
The new rule states that if a bank allows a debtor to hand over new shares to it in lieu of its liabilities to help the debtor rehabilitate its management, the FSA will allow the bank to own more than 5 percent of the debtor.
Holding equity stakes of more than 5 percent will be authorized until a borrower improves its financial health, the agency said.
The rule amounts to an effective amendment of the Banking Law. Under it, banks cannot own more than 5 percent of nonfinancial firms.
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