Asia Times: EDITORIAL: Early cherry blossoms



	March 09, 1999	atimes.com

Japan Economy

EDITORIAL: Early cherry blossoms

It's another month yet before Tokyo salarymen gather in parks around the city for traditional hanami (cherry blossom viewing) parties. But for Japan's central bank governor, Masaru Hayami, it must feel like spring has come early this year.

Having successfully resisted both strong domestic and foreign political pressure on the Bank of Japan to directly underwrite government bonds (i.e., print more money) or step up BOJ bond buying in the secondary market, Hayami has watched the yield of benchmark 10-year government bonds drop by nearly one percentage point over the past several weeks. His tactic of monetary easing without hazardous wholesale debt monetization appears to be showing its effect and even the stock market is picking up, encouraged by a lower yen and increasing signs of gradual economic recovery.

Most important among those signs is an apparent slow return of consumer confidence: Japan's overall household spending came to 323,203 yen per household on average in January, up 1.4 percent from last year in real terms according to a statement late this week from the Statistics Bureau of the Management and Coordination Agency. Already two weeks ago, spending by wage earners - a component of the overall spending data - had been reported up 2.6 percent in January from a year earlier. As incomes of heads of households also rose a real 1.1 percent in January from year-earlier levels - the first year-on-year rise in real terms in 15 months - the upward trend in consumer spending should be sustainable.

But back to the issue of BOJ bond-buying and other monetary policy measures. The interest rate on unsecured overnight call loans, the BOJ's favorite policy tool recently, has dropped almost to zero. Actually guiding the rate to zero (as Hayami has said he is prepared to do) is the only policy move left for the bank's policy board. Then what?

Few observers believe that the final interest rate gambit left to the BOJ will prove sufficient to support the bond market at present yield levels once the government starts issuing the 32 trillion yen in government bonds slated to hit the market in the new fiscal year starting April 1. After April, we could easily see a replay of the January/February yield scare - but an empty BOJ arsenal to deal with it. Carefully timed increased secondary market purchases now, we believe, would constitute the best policy to forestall recurrence of volatility and another debilitating debt market downturn.

Decisively signaling its determination now to keep the bond market stable into the second quarter would also lend further encouragement to equity markets and support budding overall economic recovery.

After their spectacular early April blossoming, Japanese cherry trees bear no fruit. As he contemplates that fact, Governor Hayami may want to carefully consider his next moves - not just sadly watch the last sakura drop to the ground. That mix of joy and sadness that grips the Japanese soul at hanami time is a very characteristic existential exercise, but best not transferred to the realm of economics.

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©1999 Asia Times Online Co., Ltd.