Yamaguchi Warns Against Keeping BOJ Credit Steps
Bank of Japan Deputy Governor Hirohide Yamaguchi said maintaining emergency credit programs for “a long time” might hamper a recovery in the financial industry even as he expressed doubt about the economic outlook.
“We need to make a judgment at an appropriate time, according to the improvement” of credit, Yamaguchi said today in Tokyo, referring to the withdrawal of stimulus steps. “We also need to be mindful that keeping the temporary measures for a long time may hurt an autonomous recovery of market functions and invite the distortion of the allocation of resources.”
Yamaguchi’s remarks contrast with new Financial Services Minister Shizuka Kamei, who said this week that banks should delay seeking repayment of loans to small companies. Policy makers around the world are debating the timing of withdrawing stimulus measures as economies begin to recover from the worst global recession since the Great Depression.
“Given the most recent comments from Kamei, the BOJ may not be able to end the corporate fund-raising supportive measures” when they expire on Dec. 31, Akio Yoshino, chief economist at Societe Generale in Tokyo, said yesterday.
The deputy governor spoke a day after the central bank maintained its programs of buying corporate debt from lenders and providing them with unlimited loans in exchange for collateral, having extended them until the end of the year in July. Governor Masaaki Shirakawa said the fate of the measures depends on developments in financial markets and funding conditions for companies, and stopped short of warning about the risks of keeping them in place.
Loan Moratorium
Kamei said today he wants to discuss as soon as possible the potential for a moratorium on loan repayments for some small companies. Prime Minister Yukio Hatoyama this week appointed Kamei, who is the leader of the new government’s junior coalition partner the People’s New Party.
Finance Minister Hirohisa Fujii today indicated his reluctance to implement a freeze on loan repayments, saying the nation took similar action more than 80 years ago and he’s not sure the economy and financial system are in as bad shape as they were then guaranteed fast personal loans.
“I’m not sure we face that kind of situation now,” he said at a news conference.
The central bank said yesterday borrowing conditions for companies “are increasingly showing signs of improvement.” Bank of Japan board member Miyako Suda said earlier this month that companies are finding it easier to get access to funds, reducing the need for the central bank’s credit-easing steps.
‘Inclined to Unwind’
“Yamaguchi’s comments signal that the central bank is inclined to unwind the extra measures, though it’s still unclear whether they want to terminate all of the programs or scale them down,” said Mari Iwashita, chief market economist at Daiwa SMBC Securities Co. in Tokyo. “I don’t think they’ll announce a decision next month, but they’re clearly moving toward ending the programs.”
Yamaguchi said the economic outlook is clouded by a “significant level of uncertainty,” while reiterating that a recovery is likely to take hold later this year. “We will keep paying close attention to a variety of risks,” he said in today’s speech.
Central bank policy makers kept the overnight lending rate at 0.1 percent at yesterday’s meeting, and said they remain concerned about the strength of the economy even as it shows “signs of recovery.” Shirakawa said he isn’t confident demand will hold up once global stimulus fades and companies finish replenishing inventories.
Yamaguchi said the central bank is seeing a “positive mechanism” in the world’s second-largest economy as exports and production benefit from improvements in the global economy.