In March 2001, the Bank of Japan set short-term interest rates at near zero, declaring that the nation's economy had entered a period of deflation. That extra-loose monetary policy, which is said to have had few parallels in the world, is likely to change next spring, because an upturn in consumer prices -- an essential condition for lifting the "zero-interest-rate" policy -- is considered almost certain.
According to the central bank's "Outlook on the Economy and Prices" for November, the Consumer Price Index (excluding prices for perishable food) will rise by 0.1 percent in fiscal 2005 (ending March 31, 2006) from the year before, for the first time in eight years. The report also predicts the CPI for fiscal 2006 will register a further increase of 0.5 percent.
The BOJ has said time and again that it will reverse its ultra-easy money policy -- aimed at expanding the money supply while overnight interbank lending rates are kept near zero -- if and when the CPI begins to follow a positive trend "on a stable basis." It now appears certain that this condition for a policy reversal will be more or less met if, as seems likely, the economy continues to expand steadily.