Moreover, further postponement of a policy change despite the manifest recovery in the economy would have dealt a severe blow to the bank's credibility. We believe that the post-bubble bad debt problem is in its final stages. Though the slight interest rate hike represented by the BoJ's policy change may push some shaky companies into bankruptcy, rates remain at super-low levels, and there is an adequate safety net in the form of financial and bankruptcy rehabilitation laws. Thus, we do not feel that the BoJ's move will threaten the financial system. The move takes away the speculation and uncertainties over prospects for the zero interest rate policy.
Financial markets are likely to remain stable until investors begin looking for the next rate hike.
However, we can only truly judge the BoJ's move to have been correct if the economy does achieve a self-sustaining recovery that allows for a further rate hike, and if the financial system remains calm in the wake of the policy change. In a press conference after Friday's meeting, Hayami conceded that the bank's communication with the markets had not been entirely smooth, and promised to work on this aspect in the future. However, looking objectively at the market turmoil in the lead-up to the policy decision, we feel that the financial markets and media should also reflect on their own shortcomings. What Hayami perhaps is really saying is that the BoJ alone cannot improve its communication with the markets until investors gain a better understanding of the changes in the law. A representative of the government attending Friday's MPC meeting proposed at the meeting that the vote on the zero interest rate policy be suspended until the next meeting, knowing full well that the proposal would be rejected.