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'BOJ too soon to be sure on recovery'

TOKYO: Bank of Japan (BOJ) Governor Masaru Hayami said that despite signs of improvement in the Japanese economy, it was too soon to be sure that the economy was on a one-way upward trend.

In an interview with Jiji Hayami said that bright spots over the past year included the rise in Japanese share prices and price stability, as well as the improvement in the financial system and progress in industrial structural reforms, Jiji said.

But he cited as causes for concern the question of whether improved corporate and household earnings would be used for capital investment and private consumption, Jiji said.

Asked if worries over deflation had eased, Hayami said downside risks remained and it was important not to misjudge the situation. "It is too early to be sure that the (economy) is on a one-way upward trend," Jiji quoted Hayami as saying.

Hayami also cited the strong yen and a possible fall in U.S. share prices as risk factors for the Japan economy. Hayami also said that basically a rise in Japanese long-term interest rates due to an economic recovery would not be a cause for concern. Rather, if the BOJ increased its outright purchases of Japanese government bonds, that would reduce confidence and could well lead to a downgrade in the bond ratings, Jiji reported.

Asked whether it was time for the BOJ to end its zero-interest-rate policy, Hayami said that such rates were certainly "abnormal" and that it would be welcome if the central bank could end the policy soon, Jiji said.

Hayami said that BOJ policy to date had succeeded in supporting the Japanese economy and that the key task this year was to forge appropriate policy to get private demand on a sef-sustaining recovery track, Jiji added.

Asked if his comments meant that he was keen to end the BOJ's zero-interest-rate policy, Hayami said he had a strong desire to do so.

"This is the first time in the central bank's 300-year history (to have a zero-interest-rate policy.) I think it has played a sufficient role in keeping the economy from getting worse, but now negative factors are piling up. There remains downward pressure on prices but it would be good if we could win the battle against deflationary worries, normalise (policy) quickly and restore the economy to healthy growth within this year," Jiji quoted Hayami as saying.-Reuters