The time is not yet ripe for the Bank of Japan to terminate its "zero-interest-rate" policy, the Industrial Bank of Japan said in a report released Wednesday.
The long-term credit bank's statement came ahead of Monday's Bank of Japan Policy Board meeting.
The upcoming meeting is seen as a good opportunity for the BOJ to tighten credit after this month's quarterly "tankan" survey indicated stronger-than-expected business confidence.
The IBJ said that interest rates have not necessarily fallen effectively because prices have also fallen and that terminating the ultra-easy monetary policy would work against an economic recovery.
Even if the Japanese economy registered growth of more than 2 percent in real terms, it would not mean the economy had grown enough to wipe out the existing gap between supply and demand, the IBJ said.
The gap refers to supply outstripping demand, which in turn causes prices to fall.
Given this backdrop, the IBJ said, the current economic environment has not yielded a situation that would eliminate concern about deflation.
The BOJ has said that its current monetary policy will be terminated once deflationary fears have ended.
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