Easing monetary policy is not from 'governor of currency' -- Akahata editorial, March 6
The Bank of Japan has announced an additional easing of money policy that will increase its monthly buying of long-term national bonds from financial institutions from the present 800 billion yen (about 6 billion dollars) to 1 trillion yen (about 8 billion dollars).
This is precisely what Prime Minister Koizumi Jun'ichiro promised to U.S. President George W. Bush at their summit talks in February. Finance Minister Shiokawa Masajuro openly demanded that the BOJ buy national bonds up to 1 trillion yen a month.
The BOJ said it decided on a further monetary easing policy without outside pressure, but no one can deny that the central bank came under pressure to yield to the Japanese and U.S. governments.
BOJ is to buy 12 trillion yen in bonds a year
The BOJ in 2001 set out to ease monetary policy under the pressure of the Japanese government, business circles, and the United States. This in itself is an extraordinary policy under the circumstances.
The idea was that the need now is to drastically increase the money supply by increasing the BOJ purchasing of long-term national bonds after the zero interest rate policy which is unheard of under capitalism.
The BOJ bought long-term national bonds for 400 billion yen a month up till a year ago. But, after a policy change was made toward monetary easing, the amount kept going up rapidly, and the BOJ is now obliged to buy 1 trillion yen in national bonds a month. Thus, 12 trillion yen goes to major banks in exchange for national bonds.
BOJ Governor Hayami Masaru explained that the additional monetary easing is necessary as a measure to deal with concerns about and threats to the financial system, including an end of legal protection of deposits, the falling prices of bank stocks under the deflation, write-offs of non-performing loans, and the increase in business failures.
In short, he believes it necessary to avert the possible "March crisis" and end the deflationary spiral, but it should be noted that the BOJ's continued money easing policy has not been able to stop the decline in bank lending for 49 months in a row. The money that the BOJ paid to major banks for national bonds will just stay in the current accounts which these banks have at the BOJ.
It's a matter of course because demand for funds by large corporations hangs low under a continued business slump and major banks are reluctant to give new loans to small- and medium-sized businesses and are aggressive in pursuing collection of debts.
Look at what the BOJ is doing. It's urging banks to accelerate the disposal of non-performing loans as a way to ensure that monetary easing will be more effective. BOJ Governor Hayami Masaru has gone so far as to call for taxpayers' money to be used by banks for that purpose.
This will only help turn off the faucet of funds flowing into small- and medium-sized enterprises and further discourage banks from lending money, thus leading to a further slowdown of the economy and increase in non-performing loans.
Certainly, even after the "March Crisis" is over, the BOJ will have to deal with one crisis after another, and the government, business circles, and the United States will indefinitely continue pressing Japan to further ease monetary policy.
The BOJ, as the guardian of the currency, is responsible for the maintenance of the yen's value and the public trust in it. If the BOJ is to stand firm in this duty, it should break with its present submission to unjust political pressures and put the brakes on the endless money easing policy which betrays public trust in the yen.
Before side-effects hit us
Hayami has said that drastic measures may have side effects. Remember that he used the Diet to warn that the continued easing of money supply may set off inflation.
The present situation shows that his warning was accurate.
As the Koizumi government exacerbates the economic recession, the easing of the money supply will further escalate, causing hyperinflation. Such a vicious circle that will only lead to a catastrophe must be immediately ended and the economic and financial policy be fundamentally changed to one of supporting the people's life and businesses. (end)