The Bank of Japan lifted its zero-interest-rate policy Aug. 11, despite strong resistance by the government, which exercised its right for the first time under the new BOJ law in its unsuccessful attempt to have the vote by the central bank's Policy Board postponed. One week later, the Nikkei-225 average on the Tokyo Stock Exchange is back again in the 16,000 range, and no major turbulence has been observed in the currency-exchange rates. Some lawmakers and economic experts criticized the BOJ for "lack of communication" with the financial markets, but the reaction so far indicates that the central bank's message has quite sufficiently been understood by market players.

In both Japan and overseas, there was widespread criticism that the BOJ made its move prematurely or as a mere gesture to "secure its independence" from government interference. Many such comments appear to have been the result of a lack of understanding of the central bank's objectives. What the BOJ wanted to do was to lift an emergency rescue measure that had been introduced, in the absence of a financial safety net, to avert a systematic financial crisis. Under the zero-rate policy, whatever amount of liquidity provided to the market was effectively deposited back with the BOJ, and the short-term money market failed to function properly. This is what BOJ Gov. Masaru Hayami described as "reality of the market" during his testimony to the Diet. Something had to be done to restore the money market's functions, and it was an extraordinary situation in a market economy that money could be raised at zero cost.

Following a series of legislative actions that established a financial safety net, such an extraordinary state of affairs needed to be terminated. The BOJ's decision was long overdue.