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Mon, Feb 27, 2006 - Page 12 News List

Bank of Japan looks set to end policy of quantitative easing

AP , TOKYO

Japan's economy is no longer in deflation, and the Bank of Japan (BOJ) ought to end its quantitative easing policy if conditions are met, the economy and banking minister said yesterday, further fueling speculation of a pending policy change.

"We are no longer in deflation, in the classical sense of the word," Kaoru Yosano said on a program on public television broadcaster NHK.

"If conditions are met, I think it is all right for the BOJ to make the decision [to end the policy]," Yosano said, adding there was "hardly any difference" between the economic outlook of the government and the BOJ.

Japan has experienced about seven years of deflation, a situation in which prices decline and undermine economic growth by eroding company earnings and paychecks.

To help spur a recovery, the central bank has maintained an easy monetary policy of flooding the markets with excess cash and maintaining interest rates at zero for the last five years.

The bank has said it will end its quantitative easing policy once on-year changes in the core consumer price index (CPI) stabilize at zero or above, its board members agree that the CPI won't fall back, and the economy is strong enough to warrant a move.

The core CPI was up 0.1 percent on-year in November and December, and is expected to rise again for last month, while the economy posted a healthy 5.5 percent annual growth rate in the fourth quarter.

BOJ Governor Toshihiko Fukui said recently he wants to end the policy "immediately" after the conditions are met. But some government ministers have urged the bank to be cautious so as not to choke off the recovery.

"The bank needs to more specifically define its criteria for ending its quantitative easing policy," said Heizo Takenaka, internal affairs minister and former economy minister, on a separate program yesterday.

"A framework of cooperation needs to be established between the government and the bank," he said on a TV Asahi talk show.

Market players have been split on the exact timing of the move. Some see the possibility of a policy shift as early as next month, but others have predicted the bank will bow to government pressure and delay any change till later this year.

Earlier this month, Paul Sheard, the chief economist for Asia at Lehman Brothers, said he did not expect an end to quantitative easing until possibly September. He said the BOJ was constrained by the government's deflation-fighting plan.

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