1 November 2005, 14:55  Japan's Yosano says stable long-term interest rates critical to fiscal reform

Kaoru Yosano, newly appointed state minister for economic and fiscal policy, said keeping long-term interest rates stable at low levels is critical to the success of fiscal and budget reforms, adding that he may ask the Bank of Japan to consider taking special policy action on government bond purchases, if needed. Yosano, former minister of economy, trade and industry, yesterday replaced Heizo Takenaka. Yosano will also serve as head of the Financial Service Agency, a watchdog for financial institutions. "A one percentage point rise in long-term interest rates would increase the government's debt service cost by 1.5 trln yen," Yosano told reporters. "Therefore, keeping long-term rates stable at low levels is critical to the success of fiscal reform," he added. "And as higher long-term interest rates could also pose a negative impact on the macro-economic activity, I think boosting the volume of long-term government bond purchases is one option, should long-term interest rates rise," Yosano added. The Bank of Japan currently buys long-term government bonds at a monthly rate of 1.2 trln yen. Yosano has previously appeared sympathetic with the monetary policy management by the Bank of Japan, saying yesterday that making any policy shift is "purely the jurisdiction of the BoJ." But he declined today to repeat the same comment when asked for his latest opinion on the preferable way of monetary policy management, in view of the central bank's stance now of preparing to call off its four-and-half-year old quantitative monetary easing policy. Bank of Japan governor Toshihiko Fukui recently said the bank may end the current quantitative credit easing policy "over the course of fiscal 2006." The new fiscal year starts April 1, 2006. In the bank's six-monthly outlook report released yesterday, the nine-member policy board forecast an average rise of 0.1 pct in the year to March 2006 nationwide core consumer price index, against an earlier estimate of a 0.1 pct decline. The Bank of Japan commits itself to maintaining the quantitative monetary easing until all three conditions for altering its present policy are met, namely, that the year-on-year change in the nationwide monthly core consumer price index must remain above zero for a prolonged period; there must be no sign of it again slipping below zero; and the economy must be growing steadily. It was Yosano who voiced concerns over a premature lifting of the quantitative monetary easing. Chief Cabinet Secretary Shinzo Abe today said it is desirable that the BOJ bear in mind that it and the government need to coordinate policies and give sufficient consideration to government policy on the economy's structural reform.

© 1999-2024 Forex EuroClub
All rights reserved