18 (Bloomberg) -- The Bank of Japan will persist with its easy monetary policy to defeat deflation and sustain the economic recovery, Governor Masaaki Shirakawa said.
“The Bank of Japan recognizes it is a crucial challenge for Japan’s economy to overcome deflation and return to a sustainable growth path with price stability,” Shirakawa said at the bank’s quarterly meeting of regional branch managers in Tokyo today. “The central bank is aiming to maintain an extremely accommodative financial environment.”
Shirakawa was speaking for the first time since Finance Minister Naoto Kan indicated he wants the central bank to do more to bolster prices and support the economy. The recovery from Japan’s worst postwar recession has been driven by exports as weak spending at home exacerbates deflation.
“The Bank of Japan’s assessment so far is that the economy will stay on a moderate recovery track and it wants to watch how things will develop,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute and a former BOJ official. Still, “the bank seems ready to take action should the economy be exposed to renewed shocks,” he said.
The yen was little changed, trading at 90.78 per dollar at 11:47 a.m. in Tokyo from 90.77 late Jan. 15 in New York and about 7 percent weaker than the 14-year high of 84.83 reached on Nov. 27. The Nikkei 225 Stock Average slid 1.8 percent, paring gains over the past 12 months to 31 percent. The yield on Japan’s 10-year bond fell 1 basis point to 1.31 percent.
Return to Growth
Gross domestic product in Japan is forecast to expand 1.4 percent in 2010 after a projected 5.3 percent contraction last year, according to the median estimate of economists surveyed by Bloomberg News.
“Japan’s economy is picking up, although there isn’t yet sufficient momentum to support a self-sustaining recovery in domestic private demand,” Shirakawa said today. He said the global economy started to mend around the second quarter of 2009 and “has been recovering at a moderate pace recently.” World financial markets are also improving, he said.
Kan, who took over as finance minister this month, said on Jan. 14 that are “still various policy measures that could be taken” by the central bank and the government. He said today that he can’t rule out the chance of another economic slump.
“The risk of falling into a double-dip recession hasn’t been completely erased yet,” Kan told reporters in Tokyo. The Diet session beginning today “should prioritize the economic and fiscal situation,” he said.
Record Budget
Kan will seek lawmakers’ approval for Prime Minister Yukio Hatoyama’s record 92.3 trillion yen ($1 trillion) proposed budget for next fiscal year.
The Bank of Japan released a 10 trillion yen credit program last month after Kan urged it to ease monetary policy when he was economy minister. Shirakawa told the branch chiefs that the central bank will continue to “consistently” work toward defeating deflation and achieving sustainable growth.
The heads of the central bank’s regional offices will publish their joint economic report, similar to the Federal Reserve’s Beige Book, at 2:30 p.m. in Tokyo. Heads of the branches of Osaka, Nagoya, Sapporo and Fukuoka will brief reporters about their economies later this afternoon.
Shirakawa and his colleagues said last month that they don’t tolerate price declines, spurring expectations they won’t raise the benchmark overnight lending rate from 0.1 percent until inflation returns to the world’s second-largest economy.
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
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