— Adds More Details, Background from 9th Paragraph
TOKYO (MNI) – At least two Bank of Japan policy board members
continued to see the potential need for additional easy policy moves to
cope with downside risks to Japan’s economic and price moves at the July
11-12 policy-setting meeting, the minutes released by the BOJ on Tuesday
showed.
“One member said that, considering the recent pick-up in the
economy, there was no urgent need to influence market sentiment by
increasing the amount of (the asset-buying) program at this stage,” the
minutes said.
“This member, however, continued that the potential need for
additional monetary easing by affecting longer-term interest rates had
not yet decreased, given that there was a risk that the time necessary
to achieve price stability would be prolonged,” the minutes said.
They also said, “A different member said that, while aware of the
need for additional monetary easing, particularly from the standpoint of
further bringing forward the projected timing at which the economy would
likely overcome deflation — through sustainable improvement in business
and household sentiment, thereby further securing the pick-up in the
economy — the member would like to wait, for the time being, for
information to gather before making a judgment.”
However, “Many members expressed the view that it would be
appropriate to continue steadily conducting purchases of financial
assets in line with the additional monetary easing measure decided after
the earthquake, as well as continue monitoring how the effects of the
easing were spreading.”
At the two-day policy-setting meeting ended on July 12, the BOJ’s
policy board voted unanimously to continue the bank’s very stimulative,
practically zero interest rate policy by maintaining the target for the
overnight call loan rate among commercial banks at zero to 0.1%, as
widely expected.
But the BOJ upgraded its economic assessment of the Japanese
economy for the second consecutive month, citing a faster-than-expected
recovery in earthquake-ravaged supply chains and industrial production.
“Japan’s economic activity is picking up with an easing of the
supply-side constraints caused by the earthquake disaster,” the BOJ said
in a statement after a two-day policy meeting.
The BOJ noted that production has rebounded after a record drop in
March, showing “clear signs of picking up” and leading to “an upturn in
exports.”
Many members warned that “uncertainty had increased somewhat with
regard to the longer-term outlook for electricity supply constraints,
and noted that this could negatively affect Japan’s economy.”
The minutes also said, “These members continued that, if operations
at many of the nuclear power plants were to be suspended, electricity
supply constraints could exert downward pressure on production, and/or
business fixed investment and private consumption could be depressed due
to a decrease in corporate profits and households’ real purchasing power
caused by increased pressure on electricity costs.”
As for risks to the outlook for prices, the minutes said, “A few
members said that, given the relationship between price indices and
wage, such as inflation expectations might decline due to the downward
revision (stemming from the change of the base-year of calculating
CPI).”
“Some members emphasized that it was not short-term inflation
expectations that were important for economic activity, but rather
medium- to long-term ones — currently stable at around 1% — and that
developments in such expectations would be the key point of focus in
assessing prices,” the minutes said.
They also noted, “One member said that the year-on-year rate of
change might temporarily turn negative again, although only slightly.”
“One member added that attention should be paid to whether the
revision might influence the outlook on the economy’s overcoming
deflation,” the July meeting minutes showed.
“A few members said that it was necessary to bear in mind that
factors that exerted upward pressure on the rate of change — namely,
increases in the tobacco tax and nonlife insurance costs — would fall
off in October 2011,” they also said.
With regard to overseas economy, the minutes said, “Some members
were of the view that downside risks to economic activity, as well as
upside risks to prices — particularly in emerging economies — had
increased to some extent.”
tokyo@marketnews.com
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