BOJ's Hayami - yen's fall too steep

Hayami also told the Nihon Keizai Shimbun in an interview for its Thursday edition that Japan may be on the eve of a deflationary spiral and that the central bank's monetary easing has yet to produce results.

Asked if authorities should nudge the yen lower to revive the ailing economy, Hayami replied:

"The recent fall of the yen has been a bit too steep although the exchange rate of 130 yen to the dollar will benefit exporting companies."

Hayami reiterated his view opposing the purchasing of foreign bonds to guide the currency even lower, saying that it was important to stimulate private sector demand through structural reforms.

"If you just rely on a weak yen to take the economy out of the woods, that could tempt private companies to neglect their efforts at structurally reforming themselves," he said.

Hayami was candid with regard to the effects of the Bank's monetary policy: "Although we have substantially eased our credit reins, money is not reaching companies and the BOJ's monetary easing has yet to produce results," he said.

His outlook for the Japanese economy was a gloomy one: "If you define a deflationary spiral as a process in which the economy worsens and prices fall at the same time, we might indeed be on the eve of one," he said.

There have been market rumours that Hayami, who is 76, may resign. Asked if he might step down before his term ends on March 2003, he said he did not know.

"I will stay on the job if my health permits but I'm quite old."