{BOE Posen: Tsunami Won’t Stop Japan’s Return To Normal Growth>}
–BOE Posen Warns Against Premature Japanese Fiscal, Monetary Tightening

LONDON (MNI) – The extensive damage caused by the March 11 tsunami
will not prevent the Japanese economy returning to normal growth levels
and avoiding a deflationary trap, Bank of England Monetary Policy
Committee member Adam Posen said Wednesday.

Posen argued the hit to growth from the natural disaster would
result in a stronger rebound, and the economy would recover like any
other advanced economy would. The MPC member said the yen would
“inevitably” depreciate, helping the country to avoid deflation.

“It is my belief that the human tragedy of the March 2011
earthquake and tsunami will do nothing to dislodge the Japanese economy
from the long-term development path common to all advanced economies,”
Posen said.

“The rebuilding from the tsunami will only accelerate the growth
rate in the short-term with a surge in capital investment, just as
occurred following the devastation of World War II or the Kobe
earthquake,” Posen said.

Posen said the Japanese economy should grow, over time, in line
with productivity growth of around 2% annualy.

Posen, an expert on Japan’s financial debacle in the 1990s, warned
the authorities against underestimating potential Japanese growth and
tightening policy prematurely.

“The current recovery will bring Japan back to price stability. An
inevitable depreciation of the yen against the euro and the Chinese
currency will in coming years help overcome deflationary trends, as will
mounting global upwards pressures on energy import prices,” Posen said.

He praised the recent co-ordinated G7 intervention to support the
yen.

“Underestimating the potential growth rate of Japan again, and
returning to monetary or fiscal policy tightness too soon could become a
self-fulfilling prophecy,” Posen said.

The speech made no reference to the UK economy or Bank of England
policy. Posen was speaking at tje 12th Annual Mitsui Symposium, Center
on Japanese Economy and Business, Columbia University, New York.

–London newsroom: 4420 7862 7491; email: drobinson@marketnews.com

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