ＢＯＪ after the burst of the bubble

1. ＢＯＪ　after the burst of the bubble Yoichi Takita, Nikkei

2. 1999.2 Zero interest rate policy • Serious financial crisis in 1997~1998 • Huge fiscal stimulus in 1998 • Jump up of long term interest rate • BOJ declared zero interest policy until deflationary pressure eases

3. 2000.8 Exit from Zero interest rate • Japanese economy looks like recovery thank to IT boom • BOJ raised Short term rate by 25BP • Just after the Exit IT boom was over

4. BOJ stepped into Quantitative Easing • 2001.3 BOJ stepped into QE • Continue zero interest until Core CPI will turn to be plus • Policy target to the volume of Bank deposit on BOJ • To increase Japanese Government Bond in order to inject money

5. Exit from QE • 2006.3 BOJ got rid of QE • 2006.7 BOJ raised Short term interest rate by 25BP • Japanese economy is recovering and Core CPI is turning to be positive

6. Lessons from Japanese experience • Coordination between fiscal and monetary policy is crucially important • Do not misjudge false dawn as real dawn • To restore financial system is also crucially important especially after the burst of the huge bubble because of balance sheet problem in private sector

7. Deflation or Asset price deflation • In Japan deflation was rather modest. Cumulative fall of CPI is 3% between 1997~2004 • Asset price decline was serious; Equity and Real estate price declined roughly 80% from top to bottom • Such a sharp decline hit the BS especially Bank’s BS

8. Need of political decision • To inject public money to injured Banks is crucially important • But it is difficult facing the protest from the public