BOJ to do 'utmost' to fight deflation: Shirakawa+

NAGOYA, Nov. 30 Kyodo -
Bank of Japan Governor Masaaki Shirakawa said Monday the central bank will do
''its utmost'' to overcome deflation while closely communicating with the
government to ensure a stable economic recovery.
In a speech to local business leaders in Nagoya, Aichi Prefecture, Shirakawa
added that the BOJ is carefully watching the effects of the yen's recent sharp
appreciation on corporate sentiment and emphasized that the central bank is
ready to take necessary steps to secure the stability of financial markets.
''The bank will do its utmost to overcome deflation,'' he said, while adding
that maintaining stability of the financial system is key to preventing Japan
from slipping into a deflationary spiral.
The Japanese government declared Nov. 20 that Japan has fallen back into
deflation with consumer prices continuing to fall. Shirakawa and Prime Minister
Yukio Hatoyama are expected to meet later this week.
Asked what he plans to talk about during the meeting, Shirakawa said at a press
conference after the speech that the BOJ and the government will learn each
others' views on recent developments in the economy and prices, adding that
close communication with the two parties is ''important.''
Shirakawa's comments came after some in the Cabinet criticized the BOJ for what
they view as a too optimistic economic outlook, urging the BOJ to do more to
support the economy.
Financial Services Minister Shizuka Kamei, a vocal critic of the BOJ, said last
Tuesday the central bank was ''asleep as usual.''
Chief Cabinet Secretary Hirofumi Hirano said Monday that issues the prime
minister and BOJ chief will discuss will include whether the central bank is
seeing the need for further quantitative easing.
The BOJ has pledged to maintain an extremely accommodative monetary policy for
the time being to support the economy.
But with its key interest rate at a rock-bottom 0.1 percent, there is little
room for the BOJ to adjust conventional monetary policy. Analysts say the
support the government is most likely to want from the BOJ is for the central
bank to increase its government bond purchases to finance its steps to
stimulate the economy.
Shirakawa refrained from answering the question whether the BOJ will boost the
purchase of state debt, but said, ''We're always considering the best measures
in light of financial and economic conditions of the time.''
He added that the ultimate judgment on monetary policies is at the discretion
of the central bank.
On currency moves, Shirakawa said the foreign exchange market ''has become
unstable lately,'' and added excessive volatility is undesirable.
His comments came after the U.S. dollar hit a 14-year low in the upper 84 yen
range at one point in Tokyo on Friday as debt problems in Dubai stirred renewed
worries about the financial sector. The dollar recovered some of its lost
ground later and traded in the upper 86 yen zone Monday morning in Tokyo.
''The bank is paying due attention to the effects of the recent rapid
appreciation of the yen on the business sentiment of firms that are on the road
to recovery,'' he said.
Shirakawa added the BOJ has also been closely monitoring ''the effects of
international financial developments since last week.''
''I will reemphasize that the bank is always prepared to act promptly and
decisively if it is judged necessary to ensure the stability of financial
markets,'' he said.
As for the state of the Japanese economy, Shirakawa said the domestic economy
is ''picking up.'' But the increase in private demand stems largely from
economic stimulus measures and the momentum for a self-sustaining recovery
remains weak, he added.
''The economy has gotten out of a deteriorating phase, (but) the level of
economic activity remains low and the pace of future recovery will not likely
be smooth,'' he said.
==Kyodo
2009-11-30 23:28:52