28 February 2001, 12:49 Hayami says BoJ rate cut decision affected by equity falls, U.S. economy
TOKYO (AFX-ASIA) - Bank of Japan governor Masaru Hayami said the
recent sharp drop in stock prices and the slowing U.S. economy affected
today's decision to lower short-term interest rates.
"A 10 basis point rate cut will have a big effect on the economy
but I think more than 10 points will conflict with the market
mechanism," he said, noting that he proposed today's cuts.
"Japanese stock prices remain sluggish and the future course of
corporate capital spending has become a concern, resulting in a further
slowdown in Japan's economic recovery.
"Considering those recent conditions, I think the economic downside
risk has heightened since the previous meeting.
"I would like to watch closely today's remarks by (U.S. Fed
chairman) Alan Greenspan before the Senate to see whether the U.S.
economy will develop from now on," he said.
"But I think the U.S. economy will continue to be strong, even if
production, inventories and the stockmarket show a temporary
deterioration."
Asked whether he will decide to further lower rates at the next
meeting, Hayami said: "The next time we might raise rates, rather than
further lowering rates, depending on the situation."
On whether Japan faces falling into a deflationary spiral, he said:
"There is such a possibility. Therefore, we decided to cut rates to
increase the provision of liquidity into the money market."
He added: "I think that in the process of economic structural
reform going forward, corporate bankruptcies will definitely happen. So
we took the steps to cope with such a possibility.
"Uncertainty over future economic conditions are increasing," he
added.
Hayami stressed the importance of Japanese banks promoting
structural reforms in order that they can increase lending to
companies.
"Economic stimulus measures and structural reforms are not
separately pursued," he said.
Hayami added that the BoJ will watch closely market and economic
conditions and take necessary steps.
"We will continue outright purchase of long-term bonds at the
current 400 bln yen per month pace but we will consider whether to
increase purchases exceeding that level depending on the future
situation."
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