April 8, 2008 / 2:56 AM / 11 years ago

Highlights 4-Remarks by BOJ nominees Shirakawa and Watanabe

(For more on the BOJ succession, click [ID:nT55777])

TOKYO, April 8 (Reuters) - Japan appeared close to ending a stalemate on Tuesday over who should head its central bank, with analysts expecting a smooth ride through parliament for the government’s third pick for governor, Masaaki Shirakawa.

But the political standoff between the government and opposition parties over the Bank of Japan (BOJ) leadership may linger, after the government nominated as deputy governor a former finance ministry official, Hiroshi Watanabe.

The main opposition Democratic Party opposes such officials in top BOJ posts, saying their connections with the ministry could harm the central bank’s independence.

Following is a summary of comments made by Shirakawa and Watanabe in parliament.


“The Japanese economy is facing various risks, both at home and abroad, including turmoil in the world’s financial markets, the slowdown in the world’s economy, and a deteriorating business environment among small firms due to rises in raw material prices as well as price hikes for daily products.

“As for the economic outlook, the probability of the Japanese economy recovering moderately after the slowdown for the time being is relatively high.

“If you look at the biggest risk factor, which is strains in financial markets, the U.S. markets are going through the most serious turmoil since the 1930s.

“Under these circumstances, it is important for the BOJ to examine the probability of its scenario and carefully check upside and downside risks without preconceptions, and then to take necessary and appropriate policy action flexibly.

“Fortunately, Japanese financial markets have not experienced strains so far and have been relatively stable, but I think we need to pay careful attention in order to maintain the market mechanism.”

From a Question and Answer session in the upper house:


“The starting point of the U.S. problems was declines in house prices, but what is happening now is not only the collapse of the housing bubble but also the collapse of a credit bubble that has grown over the past several years.

“People became complacent about risks given low interest rates despite favourable economic conditions, and that prompted them to take excessive risks. The impact clearly appeared in the securitised product markets, whose mechanism is not functioning much.

“The impact also spread to a stricter lending stance by banks.

“Movements in stock and currency markets have become big and when markets are fluctuating a lot like this, that will certainly affect the real economy.

“The core of the problems is the collapse of the credit bubble, meaning they (U.S. financial institutions) do not have enough capital. This cannot be solved by liquidity injections by central banks. First of all, the financial institutions need to fully lock in their losses and the basic principle is for them to seek more capital on their own.

“First of all, there should be efforts by the private sector. But if the efforts by the private sector are not enough, a public capital fund injection, among various options, may become necessary.

“If I end up going to the G7 meeting as governor, I would like to tell the United States my own thoughts on what it should do from now on while taking into account Japan’s experience.

“Using Japan’s experience, I would like to give advice on what should be done for the stability in the global economy, as someone from a country that has been through this problem.”


“People are feeling price trends not necessarily from price indexes but from prices of items they buy often such as gasoline and food.

“Food prices are rising, which makes people feel prices generally are going up.

“But looking at overall prices, some are rising but on the other hand products such as electrical goods have fallen.

“(The core consumer price) index as a whole shows the recent number was up 1 percent from a year earlier and higher than before, but it is not in a situation it will rise rapidly.

“As we have only one interest rate (target) in monetary policy, we cannot realise everything through one policy.

“We have no choice but to guide monetary and interest rate policy while assuming that prices are stablising sustainably.

“The stability of financial systems and price stability are related but they sometimes show different moves. In that sense, when you ask me what monetary policy is all about, I’d say its aim is to protect the value of money.”


“We will decide what to do with interest rates by closely examining information at each policy meeting.

“Generally speaking, I feel two things that conflict with each other. For one thing, we need to keenly watch the situation at the time and take necessary steps flexibly.

“On the other hand, monetary policy takes effects with a considerably long lag of one or two years, and past experience shows it tends to be influenced by the underlying situation.

“We need to make a judgment out of these two factors. As for the discussion of normalising interest rates, real interest rates are very low as a matter of fact. But that doesn’t mean that such a fact will direct a decision on policy rates at each meeting.

“I’m making the point that we need to fully take into account a broader economic trend (when setting policy).”


“When we look at global fund flows, increasingly abundant funds are spilling out of financial markets to commodity markets such as crude oil, expanding their boundaries. Funds are moving around markets quickly, looking for higher returns.

“Given such abundant funds, which partly stem from increases in savings in emerging economies, each market has come to move in the same direction, raising the positive correlation or resonance (between markets). That has made risk hedging difficult and has also helped to raise the volatility of overall markets.

“Against such a backdrop, international financial markets have started to go through large fluctuations, triggered by the subprime problems since last summer. The degree of adjustments in markets has become deeper this year. The dollar fell below 100 yen for the first time in about 12 years while oil prices remain high.

“Moves like these could hurt market players’ ability to foresee the future and deal with the situation, threatening to slow down the economy further.

“The market volatility since the subprime problems has slowed down the U.S. economy both in investments and consumption, through shrinkage in money markets.

“Due to volatile exchange rates and a tight demand-supply balance in commodity markets, downside risks to the world’s economy are rising.

“How the BOJ conducts monetary policy is increasingly important at a time when the global economy, as well as the Japanese economy, faces a critical stage in the short and long term. If I become deputy governor, I would like to support the governor with all my strength to achieve economic development through price stability.

“The transparency and independence of monetary policy is extremely important. I will try to be accountable through communication with markets, ensure the transparency and independence of monetary policy and retain public confidence.”


(From the Q&A session in the upper house)

Asked about his philosophy behind his decision not to intervene in the currency market while he served as the top finance ministry official in charge of Japan’s currency policy from 2004 to 2007:

“There are three types of intervention. The first is to rescue market participants from the adverse impact of very volatile market movements in an event like September 11.

“The second is so-called smoothing operations, which are meant to lessen fluctuations when markets become unstable for some reason.

“The third is intervention to set certain levels for currencies. I believe such intervention to seek certain levels is inconsistent with the purpose of intervention.

“As for smoothing operations, if one day the yen suddenly rises against the dollar, hurting people who happen to have settlements of accounts for exports, such operations can be justified.”

Reporting by Yoko Nishikawa, Hideyuki Sano and Tetsushi Kajimoto; Editing by Michael Watson

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