RTTNews - Wednesday, Deputy Governor of the Bank of Japan Hirohide Yamaguchi said in a speech in Hakodate that deciding when and how the exceptional policies should be withdrawn is an important policy issue. The central bank should plan an exit in a way that market participants can anticipate and not bring any unnecessary market disturbances.

With regard to future developments in corporate financing, Yamaguchi said there remains uncertainty about whether the signs of improvement would become widespread. Financial position of financial institutions depends on future developments in economic activity as well as in corporate profits. In case, lending attitudes of financial institutions become more cautious, corporate financing might fail to recover fully. So the central bank would continue to examine developments in corporate financing.

Yamaguchi added that the central bank's baseline scenario projects the rate of decline in prices will accelerate temporarily, but will moderate from the latter half of fiscal 2009 against the backdrop of a recovery of economic activity. Therefore, Yamaguchi said the Bank thinks it is unlikely at present that prices will continue to decline and thereby lead Japan's economy into a deflationary spiral.

Last week, the Policy Board of the central bank unanimously decided to extend the overnight purchases of commercial papers and corporate bonds to December 31, 2009. Also, it will continue the U.S. dollar funds-supplying operations till February 1, 2010.

BoJ sees economic recovery to start from the latter half of fiscal 2009 as the central bank expects upward pressure to outweigh the downward effects. According to Yamaguchi, Japan's aggressive fiscal and monetary policy measures as well as the return of stability in global financial markets are likely to have positive effects.

Further, he said, the recovery path of Japan's economy depends greatly on whether private final demand -- exports, consumption, and business fixed investment -- recovers strongly in a sustainable manner without any help from fiscal and other policy measures after the completion of current inventory adjustments.

Yamaguchi told business leaders, If the recovery in overseas economies is delayed or overseas economic conditions deteriorate unexpectedly, firms may become more cautious about the future economic outlook.

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