Bank of Japan Governor Toshihiko Fukui said on Saturday the bank was keen to return to a conventional interest rate policy but that more time was needed before its "quantitative easing" policy could be ended. While the BoJ is under persistent pressure to further ease its already ultra-relaxed policy to boost the economy, Fukui's remarks highlight its dilemma over criticism the policy was making lives harder for pensioners and investors who earn virtually no interest on their bank deposits or bond investments.
"We would like to move on from quantitative easing and zero interest rates and return to a normal interest rate policy as soon as possible," Fukui told an economic seminar for the public in Osaka, western Japan.
Under quantitative easing, introduced in March 2001 at the height of concerns about a financial crisis, the BoJ floods the money market with huge amounts of excess liquidity. This has kept short-term interest rates at virtually zero, and funds traded between banks have even traded below zero on some occasions.
This, at the same time, meant banks offered rates next to zero to their depositors. In June 2003, the yield on the benchmark Japanese government bonds fell as low as 0.43 percent.
Asked by a middle-aged man on the floor about when rates would rise to "meaningful levels", Fukui urged patience and reiterated the BoJ's pledge to keep the quantitative easing policy in place until consumer prices begin to rise steadily.
"Once the CPI (consumer price index) starts to rise steadily, interest rates could drift up. But it would take still more time for them to rise to levels that would satisfy you," he said.