28 February 2001, 12:14 BoJ seen returning to zero rate policy, possibly further: NSSB
TOKYO (AFX-ASIA) - Nikko Salomon Smith Barney chief strategist
Kazuhiko Sano said the Bank of Japan is expected to return to its zero
call rate policy regime, and may explore uncharted monetary policy.
"The market is expected to start pricing in the likely reduction in
the overnight call rate back to zero, now that the rate was cut to 0.15
pct," he said.
"Such a move should further prolong the ongoing bull run in the
government bond market ... by lowering funding costs among financial
institutions (for asset allocation)."
However, Sano said the BoJ's monetary easing may not end even after
the call rate effectively returns to zero.
"The zero means that there is nothing more in terms of levels of
interest rates," he said.
"But this time, the zero may be merely the beginning of
non-traditional monetary policy."
Sano said the BoJ may be forced to adopt a genuine quantitative
monetary policy this time to stave off deflationary pressure that may
result from their efforts to solve Japan's prolonged bad loan problem.
He said he supported the BoJ's decision today, but added that the
central bank probably wanted to take such policy steps "at a later
date".
However, "apparently, the market cornered the BoJ (into making) the
decision."
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