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BOJ to keep interest rates low
[March 01, 2006]

BOJ to keep interest rates low

(Yomiuri Shimbun, The (Tokyo) (KRT) Via Thomson Dialog NewsEdge) Mar. 1--TOKYO--The Bank of Japan is expected to release a memorandum stating its pledge to maintain its zero interest rate policy for a while, even after announcing it will lift its ultraloose monetary policy, sources said Wednesday.

The government and the ruling coalition parties have asked the central bank to seek substitute measures to ensure the stability of interest rates and prices.

The Bank of Japan is therefore expected to state in a memorandum that its policy is to maintain the zero interest rate policy for a while in an effort to ensure market stability and prevent a sudden interest rate surge.

Normally, Bank of Japan policymakers release a statement about the bank's short-term monetary policy that remains in effect until the next policy-setting meeting, held once or twice a month.

However, the bank has decided to release a special memorandum when it discontinues the ultraloose monetary policy which has been in place for about five years. Details of the policy change are expected to be mentioned in the memorandum to ensure stable interest rates and prices.

The central bank reportedly is aiming to lift the official zero interest rate policy at policy-setting meetings Wednesday and March 9.

The statement that will be released when the policy is discontinued is expected to mention the shift in operative targets from quantitative current deposits to short-term interest rates.

The memorandum is expected to say that due to weak inflationary pressure in the economy, the bank can maintain an ultra-low interest rate for some time.

The statement will also serve as an indication of the Bank of Japan's commitment to ending deflation within 2006, a commitment it shares with the government.

Under the plan, the level of outright purchases of long-term government bonds, in which the Bank of Japan buys up bonds from commercial financial institutions for release in the market, would be maintained at the current level of 1.2 trillion per month.

The policy could prevent a long-term interest rate rise while stimulating the economy. The policy would be welcomed by the Finance Ministry, which is concerned about mounting interest rate payments for outstanding bonds issued.

The memorandum will also mention the bank's policy to gradually lower the level of its current account from the current level of about 30 trillion to 35 trillion down to about 6 trillion while taking steps to prevent any market confusion.

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