4 January 2002, 09:34 Japan economy may be on eve of deflationary spiral - Hayami
TOKYO (AFX-ASIA) - Bank of Japan governor Masaru Hayami said the
economy may be on the eve of a deflationary spiral due to the growing
credit risk, the Nihon Keizai Shimbun reported.
"If you define a deflationary spiral as a process in which the
economy worsens and prices fall at the same time, we might indeed be on
the eve of one," Hayami was quoted as saying in an interview with the
newspaper.
"With major banks integrating their operations in March-April, they
will likely toughen lending policies toward major corporate borrowers,
possibly resulting in another series of important developments."
The governor, however, dismissed the likelihood of a recurrence of
a credit crisis in Japan.
"The big difference from 1998 is that we have established a safety
net for the banking system this time, namely 15 trln yen in emergency
funds. The BOJ is also ready to offer emergency loans to financial
institutions," he said.
The governor also stressed the need to implement the limited
depositor protection system from April in line with the original
schedule.
Hayami also pointed out the possibility of a US-led recovery.
"If overseas economies begin to improve, the domestic economy too
will likely start to recover in the second half of the year, thanks in
part to higher exports," he said.
The governor also noted the benefit of the recent depreciation of
the yen, saying that "the recent fall of the yen has been a bit too
steep, although the exchange rate of 130 yen to the dollar will benefit
exporting companies."
But he said he hopes the yen's depreciation "will not prompt active
selling of Japan's other financial instruments, including stocks and
bonds."
"Some argue that the BOJ should purchase foreign bonds to guide the
yen even lower, but no country has ever prospered by cheapening its
currency," he added.
The governor also said the BoJ would not hesitate to take
additional action to prop up the economy, if needed.
"Although we have substantially eased our credit reins, money is
not reaching companies and the BoJ's monetary easing has yet to produce
results," he said.
Hayami, meantime, expressed willingness to stay in the position,
saying that "I will stay on the job if my health permits but I'm quite
old."
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