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No Sign of Japan Economic Recovery

June 30, 1999

TOKYO (AP) _ Japan’s economic slide has bottomed out, although there are no signs yet of a recovery, the head of the Bank of Japan said Wednesday.

Masaru Hayami has said the same thing before, but his assessment has taken on new significance following a recent report of surprisingly robust economic growth.

Traders and investors are listening closely to Hayami’s comments for any signs the central bank to raise interest rates from historic lows.

Japan’s gross domestic product _ the measure of all goods and services produced within its borders _ expanded 1.9 percent for the first quarter of the year after more than a year of recession.

But economists and others worry that economic activity remains weak and Japan could sink back into recession unless the central bank keeps rates low and the government does more to boost consumer spending.

Japan’s central bank has already taken the extremely unusual step of lowering short-term interest rates almost to zero, hoping that the prospect of nearly free loans will encourage companies to invest more.

Speaking to the budget committee of the lower house of parliament, Hayami said the central bank’s near-zero interest rate policy ``has been taken to address an emergency situation for the Japanese economy.″

While Hayami did not say the bank was considering a rate hike, his reference to the current policy as an ``emergency″ measure was interpreted by financial market types as meaning it could be also a temporary one.

Interest rates rose and the dollar fell against the yen in Tokyo on Wednesday following Hayami’s comments on speculation that the bank could be warming to the idea of raising interest rates.

Higher interest rates in Japan would make the yen-based deposits and investments more attractive to international investors.

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