Interviewer:
You've been a major supporter of the Specific Arbitration Law, which has
been in effect since February 17th of this year.Today,I'd like you to share
your feelings on it.
Rep.Yamamoto :
I'm pleased that we finally have the means to proceed with the balance sheet
adjustment, which is the most serious problem Japan has been facing. According
to the banks, they have invested the reserves in order to compensate for
the non-performing loans. However,I still don't believe that this resolves
the issues. It solves the problems only on the balance sheet; but does not
solve the problems of the economy on a whole. Because the direct amortization
has not proceeded, the economy has not yet been affected.
Despite how much money the Japanese government has invested,it hasn't aided
in the recovery of the economy because the transactions for the small-medium
size businesses and individuals have not proceeded. This Specific Arbitration
Law and Bankruptcy Law,however,make resolution to this problem a possibility.
The Bankruptcy Law (civil reproduction method), which will be effective
April 1st, was enacted based on the chapter 11 of the U.S. Bankruptcy Law.
Presently, we should be able to proceed with the balance sheet adjustment
while taking full advantage of these new laws which have been enacted.
Interviewer:
In your interview of last year, you identified a problem in the monetary
policy conducted by the Bank of Japan. What is your opinion on it?
Rep.Yamamoto:
The balance sheet adjustment is the most serious problem that our economy
is facing. Currently, we are ready to cut through the middle of it. In the
interim, the measure we need to implement in order to improve the blood
circulation is The Monetary Policy. The Bank of Japan needs to restructure
their policy. There isn't enough money in circulation. They talk of the
zero interest rate, but it really isn't accurate. The real interest rate
is still relatively high. Because the Bank of Japan dropped the monetary
base around the fall of 1996, our economy has been declining since 1997.
The public blames the former Japanese Prime minister,Hashimoto, for the
increased tax rate and for the cut in national finance. This is incorrect.
It is a secondary event triggered by the Bank of Japan dropping the monetary
base.
The only actions which the Japanese government has proceeded with are the
finance mobilization and the tight-money policy. That's why they've failed.I
understand that the Director-General of the Tax Bureau stated the following:"
The budget compilation will be impossible to do after 3 years." It's
not possible to expend funds on the mobilization of finance anymore.
Interviewer:
In 3 years? (...Laughing...) Doesn't it seem a little optimistic? They have
been slacking the money market aggressively. However,there was an opportunity
last October related to the event of the higher Japanese exchange rate.
At that time, the Bank of Japan repeatedly made very obscure comments, and
did not initiate any action whatsoever.
Rep.Yamamoto:
Exactly.They failed to take any action. However, they increased the monetary
base in December and January to handle Y2K problems. That increase influenced
the activities of the stock market and, in response, the Japanese exchange
rate came down. The Y2K issue revealed the entire mechanism of the slacking
of the money market. (....Laughing.....)
In fact, they increased the monetary base by over 10% that time. After that,
however, the Bank of Japan began tightening the money market and the Japanese
exchange rates tended to increase again. It is a shame that there are only
a few congressmen and officers of the Ministry of Finance of Japan who truly
understand how the Bank of Japan operates.
Interviewer:
The Bank of Japan's opinion on the aggressive slacking of the money market
is vague. It was not clearly stated in the minutes of monetary policy meeting
of the Bank of Japan Policy Board. Is there any discussion about it in the
Diet?
Rep.Yamamoto:
Rep.Yoshimi Watanabe and I often question it in the Diet, however the opposition
parties don't understand this type of theory, and there is a limit to questioning
the ruling party as well.
The Bank of Japan shouldn't operate the money market by their dogmatic theory.
I suggest that they do inflation targeting instead (I don't like the word,
"inflation", I would prefer the "target policy in the stability
of commodity prices"). This means that they should operate the monetary
policy setting, increase the target by stabilizing the consumer prices by
1-3 % in 2 years. Otherwise, their dogmatic policy will distort the Japanese
economy.
Interviewer:
You mentioned the "dogmatic policy of the Bank of Japan", when
do you feel it started?
Rep.Yamamoto:
A Long time ago. They lack a financial theory. When I graduated from the
University, there was the Komiya/Yoshino controversy mainly involving the
professor of Tokyo University, Ryutatro Komiya. Additional controversies
followed the Komiya/Yoshino issue, and were discussed repeatedly in regards
to the Bank of Japan. The Bank of Japan lacks a policy target. They can't
grasp the issues in the framework an economist normally uses such as defining
the policy target and the policy means.
In other countries, a government presents a policy target to their central
bank when the bank gains independence on the monetary policy. If the Bank
of Japan obtains independence on the monetary policy, the government or
the Diet should present the target and allow the Bank of Japan to operate
it based on the target. Otherwise, it doesn't balance the consistency in
the independence.
Interviewer:
How would you describe the discussion at the Monetary Policy Meetings of
the Bank of Japan Policy Board ?
Rep.Yamamoto:
I can't comprehend it because they don't have a target. I don't understand
what they mean by wiping off the concern over deflation. Who would determine
the concern of deflation? Does the The Governor of the Bank of Japan or
a member of the Policy Board feel concerned with deflation suddenly? It
doesn't make any sense to evaluate it unless they present it in a way that
everyone can understand.
Interviewer:
The Governor of the Bank of Japan will be asked to explain his accountability
in the Diet. Isn't it clearly stated in the revised Bank of Japan Law?
Rep.Yamamoto:
"The Bank of Japan's "Review of Monetary and Economic Developments
" is published every six months. The Governor of the Bank of Japan
is supposed to explain the contents of the publication. However, he only
reads it and attempts to avoid answering questions asked by the Congressmen.
He offers an excuse, saying that the Bank of Japan's secretariat will answer
the questions individually, and that they will answer the questions only
on that particular day. The Congressmen in the opposition parties are unfamiliar
with financial theory. It's easy to see how this procedure fails to lead
to any essential discussion on the subject.
Interviewer:
You mean a questioner is also in a weaker position in the Diet?
Rep.Yamamoto:
That's right. The Bank of Japan is trying to avoid being taken advantage
of.
Interviewer:
Let me ask the last question: How do you think the Japanese economy will
fare in the future?
Rep.Yamamoto:
Presently we are in the worst possible position. As a result, I can speculate
that the only direction we can go is towards gradual recovery. However,
this is all dependent upon the Bank of Japan's monetary policy. Otherwise,I
predict it will recover a little, and then decline again.
Interviewer:
Thank you for your time with us today.
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