Bank of Japan Gov. Yasuo Matsushita reiterated August 27 the BOJ's position that the economy on the whole remains on a modest recovery track, although the aftereffects of the consumption tax hike linger on.

At a regular news conference, Matsushita said the BOJ will "continue to place priority on consolidating the ground for recovery," suggesting that an ultra-cheap money policy would continue at least for now. His comments, ironically, were made as the yield on the government's benchmark 10-year bond dipped below the critical 2 percent line for the first time ever on the Tokyo bond market August 27. The fall was apparently caused by doubts about the recovery among investors, who are starting to opt for bonds.

He declined to comment on the day's drop in the long-term interest rate, saying that the BOJ should not interfere with the market in ways that are undesirable to the bank. Since September 1995, the official discount rate, which is the rate the central bank charges on funds lent to commercial banks, has remained at a historic low of 0.5 percent. Matsushita defended the low rate, saying it has kept corporate costs lower and profits higher than otherwise possible, which has supported the entire economy.

Apart from the consumption tax increase in April, prices are generally leveling off and will probably move in a similarly steady manner for the time being, he said.