Japanese Trade Union Confederation (RENGO)

Koga Says!
Statement on the Decision to Lift the Zero-Interest Rate Policy

1. As an immediate monetary operation, the Bank of Japan (hereafter BOJ) decided in its Policy Board meeting today to lift its zero-interest rate policy for the first time in approximately five years and four months raising the uncollateralized overnight call rate target from its current 0% to 0.25%. The quantitative easing policy that the BOJ maintained since March 2001 was terminated in March of this year but the BOJ kept its zero-interest rate policy.
   
   
2. Until now, RENGO’s position has been that until the biggest problem facing our nation's economy – long term deflation – has truly receded and sustainable growth shows clear signs of being back on track the BOJ should take a cautious stance on lifting the zero-interest rate policy and any monetary policies that follow. We should not make the same mistake as when the BOJ hastily terminated its zero-interest rate policy in August 2000. On the other hand, there is the possibility that excessive inflation might occur if a response is not made swiftly: there is no question about that the BOJ needs to pay careful attention to make appropriate policy decisions on both aspects.
   
   
3. We have concerns about the BOJ's decision to lift the policy on the following points: The domestic economy continues to recover as a whole through bullish investment and increased private consumption, as well as improvements in the job situation. On the other hand, other issues are still unresolved including growing disparities which are rooted in increased instable employment or issues of non-employed youth, as well as a trend in polarization locally, in industry, and businesses. Regarding prices, the rate of change is still slightly on the rise: unpredictable factors such as fluctuations in the price of crude oil and raw materials, and economic conditions in the United States and China have not necessarily helped to stabilize an upward trend in the economy. We are not in any position to say that the Japanese economy has decisively broken away from deflation at the present stage.
   
   In addition, as indicated in its "2006 Thick-Boned Policies" (Basic Policies for Economic and Fiscal Management and Structural Reform 2006) decided on by the Cabinet earlier this month, the government is pursuing large spending cuts in the future under the name of "expenditure and revenue integral reform." Furthermore, the government is pushing to increase the burden on our citizens through tax increases. If the zero-interest rate policy is lifted too quickly, that and the government's economic and fiscal management, which threaten the safety and security of our citizens' livelihood, could have a potentially harmful influence on the economy which is finally beginning to break out of deflation.
   
   
4. Further, at the termination of this policy the government will bear a far heavier responsibility than the BOJ. The government should guide policies for the safety and security of its citizens while maintaining sustainable growth and paying sufficient attention to the possible influences that termination of the zero-interest rate policy may have on the national economy. The government should: Respond fully to the possible impact that rising interest rates might have on small to mid-sized enterprises and individual debtors as well as on the effects on interest payments on national bonds due to the influence (of the termination of the zero-interest rate policy) over long-term interest rates. Also the government should immediately revise its position on economic and financial management which is speeding toward reductions in benefits that will ultimately create a break in safety-net or raise the burden on the nation by targeting worker households.
   
   RENGO will urge the government to push ahead with economic and financial operation as well as policies that will pull the economy out of deflation and lead it toward stable growth. At the same time RENGO will work hard to create a safe and fair society.