Hayami reiterates BOJ's easy monetary policy

Japan Policy & Politics, July 26, 1999

TOKYO, July 21 Kyodo

Bank of Japan (BOJ) Governor Masaru Hayami reiterated Wednesday the central bank's determination to keep its easy monetary policy unchanged until deflation worries subside. "The BOJ had judged that it will have to keep its current bold and easy monetary policy until we reach the stage where fears about deflation are wiped out," he told a news conference. He said that since the BOJ started in mid-February the policy of guiding the overnight call money rate to around zero, its effects have been filtering through the economy and will continue to underpin it. Hayami downplayed the policy's side effects on the economy, saying, "The positive effects are continuing to show up, and not very much in the way of negative effects have been observed." "A premature hike in the interest rate would put a damper on the economy and have a detrimental impact on household expenditures," he added. He said the economy has ceased to worsen in accordance with improved corporate sentiment. But he also said he cannot expect a quick self-sustained recovery in private demand, citing slumping consumer spending and corporate capital investment. Hayami said there remains downward pressure on prices, though a halt in the decline in commodity prices and the progress in inventory adjustment will make prices flat for a while. Asked about the coordination of exchange rate policy between Japanese and U.S. monetary authorities, Hayami said the two sides share the need for intervention into currency markets to maintain stability in exchange rates. "Generally speaking, exchange rates should reflect economic fundamentals and everyone supports market intervention to stabilize abrupt movements," he said. "I think both Japan and the United States have no objection to such intervention."