The Big Picture -- Japan's ZIRP (Zero Interest Rate Policy) To END. and ....
Japanese companies expect capital expenditures to expand 8.8% this fiscal year, a reversal from the 8.7% contraction they forecast the previous quarter.
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Japan's Economy Minister Says Zero-Rate Policy May End Soon
By ANDREW MORSE and YUKA HAYASHI
June 22, 2006; Page A6
TOKYO -- Japan's economy minister said yesterday that the Bank of Japan would likely abolish its policy of keeping a crucial interest rate near zero before the end of the summer, indicating diminishing political opposition to a rate rise.
Kaoru Yosano's comments came as Japan increasingly debates the merits of abandoning its zero-interest-rate policy, adopted in 2001 as an emergency measure amid falling prices and economic stagnation. Now, as prices are rising and the economy is growing, the central bank has indicated it would like to abolish the highly unusual measure. Many politicians have cautioned the central bank against such a rise. Mr. Yosano's statement that a rate rise would be natural may make it politically easier for the bank to act.
"Zero interest rate for overnight money is something unusual compared to other countries' situations," Mr. Yosano, who is both Japan's minister for economic and fiscal policy and minister for financial services, said in an interview. The Bank of Japan knows "that they have to leave that situation sometime," he said. "Maybe not in June, maybe not in July, but in a few months' to several months' time."
The central bank's policy consists of holding the interest rate banks charge one another for overnight loans at near zero, in order to encourage bank lending and spark economic activity. Under the zero-rate policy, Japan has snapped out of a long downturn. In the January-March quarter, its economy, the world's second largest after the U.S., grew at an annualized rate of 3.1%. Consumer prices are rising moderately -- 0.4% in April from the same month the previous year. Many economists have forecast an initial rise in the policy rate to 0.25% in July or August.
Several members of Prime Minister Junichiro Koizumi's government have called for a delay, especially after recent sharp declines in stock prices. On Tuesday, Chief Cabinet Secretary Shinzo Abe, a leading contender to succeed Mr. Koizumi as prime minister, reiterated calls for the central bank to maintain its current policy. Kozo Yamamoto, an influential Lower House member, said in a speech that a rate increase in July would be "suicidal" for the Japanese economy.
A strong economy helps Japan's Asian neighbors, like China and South Korea, which are exporting more to Japan as the region integrates economically. Japanese growth also benefits U.S. multinational corporations, which are selling more services in Japan.
Mr. Yosano also expressed support for central-bank Gov. Toshihiko Fukui, who has been embroiled in a scandal over his personal finances since he disclosed he had invested in a fund managed by shareholder activist Yoshiaki Murakami. After Mr. Murakami confessed to insider trading and was arrested earlier this month, the furor prompted some analysts to suggest the central bank might delay raising interest rates.
To placate his critics, Mr. Fukui on Tuesday pledged to donate all of the $200,000 he had currently invested in the fund to charity and to take a 30% pay cut over the next six months. The Japanese media continued to attack Mr. Fukui yesterday. Mr. Yosano said he expected the issue would pass.
Write to Andrew Morse at andrew.morse@wsj.com1 and Yuka Hayashi at yuka.hayashi@wsj.com2
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In Japan, Capital-Spending Plans Point to Rate Rise
By NATASHA BRERETON
June 22, 2006
TOKYO -- Japanese companies were less optimistic about the economic outlook in the April-June period than in the previous quarter, the government said, but bullish capital-spending plans fueled the case for a near-term rise in interest rates.
The data showed that Japanese companies expect capital expenditures to expand 8.8% this fiscal year, a reversal from the 8.7% contraction they forecast the previous quarter. The government's corporate-sentiment survey is viewed as a leading indicator for the Bank of Japan's tankan survey, a widely watched indicator of Japanese business confidence next due for release July 3.
The central bank appears concerned about the prospect of excessive capital spending, which "would raise the probability of an interest-rate increase in July if capex comes in above expectations in the tankan," said Yasuo Yamamoto, senior economist at Mizuho Research Institute.
The spending data dragged on sentiment in the Japanese stock market, where it was interpreted as a warning the central bank could raise rates soon. The weakness of the headline corporate-sentiment index also discouraged buying, traders said. The Nikkei Stock Average of 225 companies fell to 14482.96 before recovering to end the day almost flat, down 4.15 points at 14644.26.
The survey, which is compiled by the Ministry of Finance and the Cabinet Office, showed that while corporate sentiment stumbled in the April-June quarter, companies expect conditions to pick up sharply during the second half of the year.
The business-sentiment index for large companies, which subtracts the percentage of managers saying economic conditions are worsening from those who say they are improving, stood at 1.8 in the April-June quarter, weaker than the 6.1 figure for January-March.
But big companies forecast the index would rise to 13.6 in the July-September quarter and come in at 12 in the October-December period. |
