Hayami denies plan to set up deflation-fighting team

Japan Policy & Politics, Nov 26, 2001

TOKYO, Nov. 21 Kyodo

(EDS: ADDING INFORMATION, QUOTES)

Bank of Japan (BOJ) Governor Masaru Hayami on Wednesday denied the government and the Bank of Japan will set up a joint team to compile a comprehensive policy to prevent the economy from falling into a deflationary spiral.

''I have not heard of a plan to conduct regular dialogue (between the government and the BOJ),'' Hayami said at a regular news conference.

But he added the BOJ and the government should continue close consultations over deflationary problems using existing channels and gatherings.

His denial came a day after economic and fiscal policy minister Heizo Takenaka revealed the plan at a news conference after a meeting of the Council on Economic and Fiscal Policy headed by Prime Minister Junichiro Koizumi. Hayami also attended the meeting.

Hayami said panel members confirmed the importance for those concerned to maximize efforts to fight deflation.

The BOJ chief stressed the central bank will ''closely monitor'' economic developments to prevent a deflationary spiral.

He reiterated monetary easing alone would fail to prevent deflation and called again for accelerating the disposal of bad loans at banks and economic structural reform to improve the nation's economy.

He repeated it is still inappropriate to set an inflation target as a part of Japan's monetary policy.

Meanwhile, Hayami welcomed Asahi Bank's plan announced Tuesday to step up the disposal of nonperforming loans, saying it is ''well-timed.''

''I evaluate highly the plan aimed at boosting its financial strengthen, and I hope this plan will be implemented steadily so that the bank will regain depositors' and markets' confidence in it,'' Hayami said.

The bank said it has decided to boost loan-loss charges, resulting in a group net loss of 530 billion yen for the whole of fiscal 2001. The decision was well received by the Tokyo stock market Wednesday.

Hayami said the timing of the announcement was good as it came when bank stocks ''have fallen too far.''

As for again injecting public funds into banks, Hayami said he sees no immediate need for it, but said it could become necessary after a undercapitalized bank fails to secure adequate capital.

''I do not think banks are currently facing capital shortage,'' Hayami said.

He said banks may become temporarily undercapitalized as they accelerate the disposal of bad loans.

''It is possible for the banks to raise funds on their own, and the issue (of public fund injection) should be discussed after such self-help efforts,'' Hayami said.