Governor of Bank of Japan Is Low-Key on Recovery

AMONG economists in Japan, the biggest question is whether the country's economy has or has not begun to rebuild itself after a three-year slump. Bank of Japan Governor Yasushi Mieno seemed to put himself in the camp of the optimists in early April, when he said that prospects for a turnaround were brightening.

But speaking to foreign journalists in Tokyo on April 19, Mr. Mieno seemed to stand back ever so slightly from that position. As with any central banker, whose comments can trigger hysteria in currency and stocks, he chose his words carefully.

* In terms of companies ridding themselves of the excess capacity acquired during the investment boom that took place in Japan in the late 1980s, ``the necessary conditions for a recovery are gradually falling into place,'' he said.

* As for Japanese banks writing off the massive pile of bad loans they acquired during that boom, ``one has to admit regretfully that we are still midway through the adjustment process,'' Mieno added.

* And he said Japanese companies were restructuring in order to operate more effectively in the global economy, but added: ``It is also true that such restructuring could exert a downward pressure on the economy in the short run.''

At least one observer, Mineko Sasaki-Smith, economist at Morgan Stanley Japan, says she thinks that Mieno ``toned down a little bit'' from his earlier optimism. But if Mieno is hedging his prognosis, he is doing it carefully. The central bank has repeatedly cut interest rates in order to spur a recovery, and its officials, Ms. Sasaki-Smith notes, ``don't want to dampen the economic sentiment that's rising.'' Some economic indicators have perked up, particularly housing starts. Mieno gave no indication of whether the bank would adjust interest rates, but Sasaki-Smith says she ``would not be surprised if the Bank of Japan cut a rate before the end of June.''