The Bank of Japan is placing its policy priority on securing market stability and facilitating corporate financing, given the current uncertain economic situations, the central bank's Deputy Governor Hirohide Yamaguchi said Wednesday.
Addressing business leaders in Otaru, Yamaguchi said, Japan's economic and financial conditions will likely continue to be severe. In this situation, the Bank's policy priority will be placed, for the time being, on securing market stability and facilitating corporate financing -- the second and third main areas of the Bank's conduct of monetary policy.
The central bank has been purchasing corporate debt from financial institutions to route funds to businesses since December 2008, when it eased its key interest rate to 0.1%. The BoJ has urged commercial banks to improve their capital base to support businesses in need.
The BoJ will continue to examine developments in financial markets and corporate financing. Also, the central bank will take necessary measures in a decisive manner without any predetermined view.
Yamaguchi said with the abrupt contraction of credit and the drop in commercial trade around the globe, many economies are inevitably facing either recession or a slowdown.
He noted that the measures taken by authorities worldwide differentiate the current economic downturn from the Great Depression of the 1930s.
Unlike the time of the Great Depression, when the authorities could not take effective measures in response to failures of financial institutions, the authorities in many countries today have already formed a framework to protect depositors and are expeditiously injecting public funds into financial institutions in distress.
Other differences are that currently, governments and central banks in major countries are promptly taking fiscal and monetary policy actions and the system of free trade between nations is being basically maintained.
He said the U.S. and European financial systems would have to regain stability for the world economy to return to a recovery path. In addition, adjustments in asset prices, production, and excessive capital stock will have to make progress, paving the way for a recovery in aggregate demand.
The BoJ expects that, from the latter half of fiscal 2009, global financial markets will regain stability and overseas economies will move out of their deceleration phase. However, given the current state of the global economy, it is inevitable that uncertainties about the outlook are great, Yamaguchi added.
He said the BoJ's baseline scenario projects that the world's second largest economy will start recovering from the latter half of fiscal 2009, but a high level of uncertainty prevails, involving some risks.
A day earlier, BoJ Governor Masaaki Shirakawa has stressed the need to boost capital bases of financial institutions in order to keep lending smooth for businesses.
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