Central banker calls for Japan reforms

BOJ chief Masaru Hayami says Japan needs reforms, not more easing

By staff and wire reports

TOKYO, Japan -- Japanese stocks rose Tuesday morning before easing later in the day, as investors had a chance to react to a gloomy report from the Bank of Japan on the economy.

Japan's central bank chief said there is little the bank can do to revive Japan's moribund prospects, however.

The Nikkei rose 1.2 percent in the morning session to go into the lunchbreak at 12,846.94. Japanese techs were warming to good news overnight from U.S. software maker Oracle.

But that positive sentiment vanished in afternoon trade, with the Nikkei closing the day in the red, down 123.53 points or 1.0 percent to 12,574.26.

Scant good news

There has been little to cheer about in Japan's stock markets or economy of late.

On Monday, the central Bank of Japan (BOJ) downgraded its assessment of the economy.

"Looking at our economy, the adjustment phase is intensifying as output has fallen dramatically due mainly to a drop in exports," the BOJ's report stated.

That comes just days after the government downgraded its assessment for the fifth consecutive month. It also broke ground, admitting the world's second-largest economy is "deteriorating."

Government growth figures released last week -- and an admission the economy is deteriorating -- show Japan is likely currently in recession. Its economy shrank 0.2 percent in the quarter through March.

Hayami says further easing won't fix Japan

BOJ Governor Masaru Hayami said Tuesday that further easing by the bank would have little effect. The BOJ this March adopted a super-loose policy of quantitative easing, which injects more money supply into the economy.

That, the theory goes, should stimulate business and spending. But the policy has had little effect so far, as Japan faces lagging demand from big trade partners in the United States and Asia, as well as problems at home such as a huge amount of bad bank loans.

Hayami reiterated his view that Japan needs structural reforms to move ahead, not an injection of more money. Prime Minister Junichiro Koizumi has promised reforms of Japan's banks and a cap on government spending.

The central bank has recently been resisting political pressure to come to the economy's aid by stepping in with more easing.

Takenaka to attend BOJ meeting

Economics Minister Heizo Takenaka said Tuesday he would like to attend the BOJ's next meeting, to represent the government's viewpoint on economic policy.

He said the BOJ seemed in synch with the government after attending last week's meeting, at which the BOJ took no action.

The BOJ has been the target of heavy pressure from past administrations, which often tried to shift blame by claiming the bank wasn't doing its part to revive the economy.

But despite calls for more easing, the current administration has gone to pains to say the bank is independent, free to make its own decisions on how best to tackle Japan's economic malaise.

Reuters contributed to this report.