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LDP Yamasaki: New Monetary Easing Steps Needed

June 8, 2001

TOKYO (Dow Jones)--The Secretary-general of Japan's ruling Liberal Democratic Party said Friday that the Bank of Japan will need to adopt new monetary easing steps in order to prevent deflation from deepening as the government follows through with financial system reforms.

"The BOJ's new monetary policy of March 19 is commendable in that it effectively reinstated the zero-interest rate policy. But, in order for capital to flow generously into the Japanese economy overall, I believe it is necessary to consider new innovations," said Taku Yamasaki at an international forum.

Yamasaki said further monetary easing would be needed as one of several measures to counter the deflationary effects of Prime Minister Junichiro Koizumi's plans for reforming the financial system by encouraging banks to dispose of their problem loans. He did not elaborate on what sort of innovations the central bank should consider.

Other anti-deflation measures that Yamasaki advocated included improving liquidity in the land and real estate markets and promoting new technologies.

The BOJ adopted a "quantitative easing" in March, effectively bringing interest rates back down to zero to fight deflation.

The easing measures included setting a Y5 trillion target for banks' deposits at the BOJ. The central bank also left itself the option of increasing its purchases of government bonds but has avoided taking such a radical step.

Titles of speakers, names of companies, etc., were correct as of the time when the forum was held.