Japan’s government has urged the central bank to maintain zero interest rates to allow the economy to recover as fears of a slowdown in US growth battered global stock markets.

“We hope the Bank of Japan will support the economy with its monetary policies,” Chief Cabinet Secretary Shinzo Abe told reporters.

“We want the bank to do so by continuing with the zero interest rate policy,” said Abe, the government’s top spokesman.

Top cabinet members including Prime Minister Junichiro Koizumi sought to reassure investors that Japan’s economy is in solid shape after the Nikkei index fell over three percent Thursday — its biggest one-day loss this year.
“The Japanese economy is on a recovery path,” Koizumi said.

Kaoru Yosano, state minister in charge of economic and fiscal policy, also said the nation should not become pessimistic over stock prices.
“The time of volatility will last for some time but the market will start reflecting the fundamentals of the Japanese economy after that,” he said.

Following the government’s call, BoJ deputy governor Kazumasa Iwata said the central bank was not accelerating the process of draining excess cash from the banking system following the end to its ultra-loose monetary policy.

At the same time he indicated that the BoJ would continue to move toward an end to its zero interest rate policy despite the stock market plunge.
“We have not changed our view that interest rate levels will be gradually adjusted as the nation’s economy is shifting to a normal state from deflation despite the current movement of asset prices,” Iwata told a news conference in the city of Akita, as quoted by Kyodo News.

In an earlier speech Iwata dismissed concerns about falling stock markets, saying: “As investors’ position adjustments calm down, the stock and bond markets will recover stability.”

SOURCE AFP