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Japan Policy & Politics - Kuroda urges resolution of bad-loan mess on easy money policy

TOKYO, May 24 Kyodo

Vice Finance Minister for International Affairs Haruhiko Kuroda on Thursday proclaimed the need to capitalize on the Bank of Japan's (BOJ) quantitative monetary policy steps in resolving the protracted bad-loan problem.

''As many people say, our biggest task for now is to carry out structural reform in the financial sector,'' he said at the Japan National Press Club.

Kuroda said financial-sector reform featuring writing-offs of bad loans left on banks' balance sheets will not automatically cause already-strong deflationary pressures to intensify.

He said the quantitative monetary-easing regime adopted by the central bank in March will ease the pains of structural reform in the banking sector.

''I think structural reform in the financial sector and the easier monetary policy will have positive effects on the economy,'' he said.

The BOJ's new policy, which followed two consecutive interest rate cuts earlier this year, is intended to pump more money into the economy until consumer prices stop falling.

Under the framework, the BOJ targets 5 trillion yen for commercial bank reserves at the central bank, compared with the prior target of 4 trillion yen, and increases, if necessary, its outright purchases of government bonds from the current 400 billion yen a month.

On foreign exchange, Kuroda said the recent dollar-yen fluctuations are ''not appropriate'' and need to be monitored in a careful manner.

On Thursday, the dollar briefly sank to the 118 yen level for the first time in Tokyo since early March in tandem with the decline in the euro against the yen. At 5 p.m., the dollar was quoted at 119.77-81 yen versus 120.10-20 yen late Wednesday in New York.

While brushing off speculation that Japanese monetary authorities will manipulate the yen's value in either direction for the good of the national economy, he said they ''must take appropriate action'' if the currency's value does not reflect economic fundamentals.

He also voiced hope that the euro's value will recover against the dollar and the yen at an early date as its downtrend is the cause of inappropriate moves between the dollar and the yen.