-BOJ's Hayami: Fund increases will not necessarily stop deflation
--BOJ's Hayami: Private demand stimulation needed to stop deflation
Osaka, Aug. 29 (BridgeNews) - Bank of Japan Governor Masaru Hayami said Wednesday there are views that the BPJ has allowed deflation and that it has let prices continue to fall, but these perceptions are a "complete misunderstanding." BOJ has carried out "unprecedented bold" monetary steps, and he repeated that progress of economic structural reform is essential to ensure a sustainable economic recovery.
Hayami, speaking at an unofficial meeting with four business lobbies in Osaka prefecture, said there is talk that increases in funding will stop deflation. However, he denied such talks, saying prices tend to be influenced in the short term by many factors, such as the balance between demand and supply, and overseas factors.
The current price falls have been caused by weak demand, he said. Corporate managers are now facing uncertainties about future demand and questions about future industrial growth, rather than high interest rates or funds shortage, he said.
Besides, BOJ's monetary easing, activation of private demand and government policies to stimulate private demand is necessary to stop deflation, he said.
The current conditions are near the so-called "liquidity trap," he said.
In liquidity trap, when interest rates decline to a certain level, increases in funds supply by a central bank will not necessarily lead to further rate falls.
However, policies strengthening demand are believed to be effective in stimulating the economy and stopping price falls, Hayami said. But he said Japan cannot depend on increases in fiscal expenditures anymore, adding that it is important for the government to stimulate private demand through deregulation and by implementing fiscal steps which will have major positive impact.
As for bad loan issues, Hayami said it is necessary to overcome bad loan issues early in order to supply funds for economic recovery smoothly. He added worsening economic conditions, falls in land prices and excessive corporate debt have led to the newly created bad loans.