BOJ Watch: Board Stands Pat On Policy Despite GDP Growth
Friday, September 10, 1999
TOKYO (Nikkei)--In a widely expected move, the Bank of Japan's policy-setting board voted Thursday to leave its near-zero interest rate policy in place despite the day's announcement by the Economic Planning Agency that the nation's gross domestic product expanded at an annual pace of 0.9% in the April-June quarter.
The decision underscores the BOJ's reluctance to abandon its ultra-loose monetary policy easily, and also points to a gap between the government and the central bank over the economy.
EPA chief Taichi Sakaiya said Thursday that the economy is "heading toward a recovery track." In contrast, the BOJ remains guarded in its economic assessment, largely because bank lending has not picked up after massive injections of liquidity into the system.
Even if Japan's economy has turned the corner, price movements, which the BOJ is monitoring closely to judge the deflation outlook, remain unclear. From the bank's position, deflation fears have not been removed from the picture.
Until the excess liquidity that is now stagnating starts to penetrate into the real economy, the impact of near-zero interest rates and economic recovery will not really hit home, according to the BOJ.
The policy board meeting included a discussion of how to assess the economy, but given the decision to stand pat on policy it is highly unlikely that the nine-member group made a major shift in its overall cautious stance.
Meanwhile, the consensus view in the money markets is that the BOJ's resolve to keep overnight interest rates effectively at zero is acting to curb upward pressures on interest rates stemming from signs of economic recovery.
A majority of market insiders believe that it will be a while before the central bank is ready to upgrade its economic assessment.
(The Nikkei Financial Daily Friday edition) |
