Tue, 01 Aug 2000

Japan's zero-interest-rate policy

While acknowledging that concerns about deflation have largely been dispelled, the central bank said that the potential fallout from the bankruptcy of Sogo Co., the department store chain, precluded it from raising interest rates at this time.

A central bank that chooses to base its monetary policy on the fate of a single corporation is making a grave error, however.

An amendment to the Bank of Japan Law was supposed to have bolstered the central bank's independence, but it continues to be concerned about the opinions of Japanese politicians and U.S. officials. This forces us to ask the question, does the central bank have a spine?

The sooner the central bank puts an end to its emergency monetary measures, the better. The Bank of Japan's Policy Board made a mistake and must redeem itself when it meets again on Aug.11. If the central bank fails to act at that time, it will risk squandering its remaining credibility.

-- The Mainichi Shimbun, Tokyo