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BOJ-watchers mull end of zero-rate policy

TOKYO: Following are views of former Bank of Japan officials and BOJ-watchers, in recent interviews with Reuters, on the timing and preconditions for the central bank to end its year-old policy of driving short-term interest rates virtually to zero. former BOJ deputy governor

"I would think that a bottoming in prices and a recovery in corporate profits would be the key to ending the zero interest rate policy. An improvement in the supply/demand balance is vital." former BOJ executive director

"The BOJ has to wait until long-term interest rates rise to the three percent level (on expected strong January-March data to be reported around June) and expectations of an economic recovery are priced into rates, and at the same time share prices stabilise at the 20,000 level (on the Nikkei average). former BOJ executive director

"For the BOJ, its zero interest rate policy is abnormal, so the bank wants to end it as soon as possible when conditions allow. When financial markets tangibly feel that the economy is on a recovery path led by private demand, then the BOJ must end the zero interest rate policy. But that is not in sight yet."former BOJ executive director

"A decline in Japan's stock market could be unavoidable, and that would have an adverse effect on the economy if the high-flying US stock market fell and corrected itself. Given this background, it will be difficult for the BOJ to end its zero interest rate policy within this year." chief economist, Dai-Ichi Kangyo Research Inst

"Since last year, the BOJ has begun a campaign aiming at ending the zero interest rate policy. For the BOJ, this is the year of laying the groundwork for lifting the zero interest rate policy. Next year is the year they achieve it." economist, JP Morgan

"The most likely scenario for a move is in the first quarter of 2001 (50 percent chance then, 10 percent in July-Sept 1999, 20 percent in Oct-Dec, 20 percent after April 2001). The recovery is still likely to be fragile. As long as there's any threat to recovery from yen appreciation, the BOJ will stay on hold. Elections will probably be held after the (July) G7 summit, and the BOJ will stay out of the way of that timetable."chief economist, Lehman Brothers

"It now looks guaranteed that for the fourth quarter will be negative so you're talking about two consecutive quarters of decline, which is technically a recession. What central bank in its right mind would think about raising rates?. They shouldn't even think about raising rates in the next six months."senior economist, Daiwa Research Institute

"I don't think the BOJ will halt its zero interest rate policy by the end of 2000. The only possible minor change would be to reduce its excess surplus funding in the money market from one trillion yen to whatever minimum level is needed to guide overnight rate to nearly zero. But even that could only happen after the April-June quarter, after the next G7 meeting."

senior economist, ABN AMRO Securities

"The BOJ won't end the zero rate policy during fiscal 2000/01 (starting on April 1). At the earliest, it will happen in fiscal 2001. The government needs to deal with post-"bubble" clean-up of the construction sector in the second half of fiscal 2000/01."-Reuters