— Adds More Details, Background From 14th Paragraph
TOKYO (MNI) – A few members of the Bank of Japan’s policy board
voiced more concern at their November 4-5 policy setting meeting over
the downside risks to Japan’s economic and price outlook than over the
upside risks, the minutes of that meeting released by the BOJ on Monday
show.
“A few members expressed the opinion that careful attention should
be paid to the economy’s vulnerability to downside risks, particularly
when the pace of economic improvement remained slow,” the minutes state.
The risk assessment shows a bit more concern for downside risks
that does that of BOJ Governor Masaaki Shirakawa, who has repeatedly
said that the upside and downside risks are largely balanced.
The November meeting minutes also showed many members remained
concerned about the effects of the strong yen exchange rate.
“Many members said that careful attention should continue to be
paid to the possibility that the appreciation of the yen might exert
downward pressure on Japan’s economy by negatively affecting business
and household sentiment, in addition to depressing growth in exports and
corporate profits.”
“In this regard, one member noted that prospects for corporate
profits in the second half of fiscal 2010 were severe, particularly for
exporters, reflecting the appreciation of the yen,” the minutes said.
Nevertheless, the minutes indicated that the BOJ board didn’t see
an imminent need to consider taking additional steps to ease monetary
policy at that time.
On Nov. 5, the BOJ policy board voted unanimously to leave the
target for the overnight lending rate among commercial banks unchanged
in a super-low range of zero to 0.1% as part of its month-old
“comprehensive” easing aimed at beating deflation.
After the two-day policy meeting that ended before noon on Nov. 5,
the BOJ also announced details of its new program to buy various
financial assets from commercial banks from the special Y5 trillion fund
it has created on its balance sheet to help revive financial markets
and, in turn, support the real economy.
Planned purchases of exchange-traded funds (ETFs) will be linked to
the Tokyo Stock Exchange’s broad TOPIX index or the Nikkei 225 stock
average, the BOJ said.
The bank moved up this month’s policy-setting meeting to Nov. 4-5
from the earlier announced Nov. 15-16 date, only a week after the last
meeting on Oct. 28, in order to “discuss and decide the principal terms
and conditions for the purchases of ETFs and J-REITs with a view to
promptly starting their purchases.”
However, many analysts suspected the BOJ moved up its meeting in
order to be able to react to any negative market reaction from the
announcement by the Federal Reserve of its $600 billion quantitative
easing program (QE2) on Nov. 4. The BOJ was not forced to react
because markets took the Fed announcement rather calmly.
On Oct. 5, the BOJ board decided to set up a Y5 trillion fund to
buy a wide range of public and private financial assets, such as
Japanese government bonds, corporate bonds, commercial paper, ETFs and
J-REIT.
At its November 4-5 meeting, the board was somewhat less concerned
about the U.S. economic outlook — one of the key downside risks for the
Japanese economy — than previously.
“One member expressed the view that growing expectations about the
Federal Reserve’s further easing had already contributed to improving
household and businesses sentiment, and since the further easing had in
fact been decided at the meeting, downside risks to the U.S. economy had
weakened somewhat.”
Still, one member warned: “the effects of the measure taken by the
FOMC were highly uncertain and growth in the U.S. economy was still
likely to remain low for some time.”
“Another member expressed the opinion that it was necessary to
consider carefully the effects of the economic activity of the Federal
Reserve’s balance-sheet expansion, in itself, through the purchases of
Treasury securities,” the minutes also said.
In general, the BOJ was keeping a close eye on the effects of
general accommodative monetary policy among industrialized nations on
the global economy and markets.
“Some members expressed the view that, with regard to the
aggressive monetary easing measures taken by advanced economies, one of
the significant issues to keep in mind was how these measures would
affect the sustainable growth of the world economy via channels such as
foreign exchange rates, commodity prices, and capital inflows, given the
differences in the pace of recovery between advanced and emerging
economies.”
As for the outlook for BOJ’s monetary policy, “Some members were of
the opinion that, since it would be the first time for the BOJ to
actively purchases … riskier assets as part of its conduct of monetary
policy, the BOJ should take account of market participants’ opinions and
review the guidelines for the operation of its asset purchases in a
flexible manner, as necessary.”
The representative from the Ministry of Finance put pressure on the
BOJ to be ready to consider taking addition policy easing steps in the
future, if necessary.
“The government expected the BOJ to not only start purchasing
assets promptly but also to take decisive action without delay in order
to respond to any changes that might occur in the economic and financial
conditions,” the November minutes also said.
The BOJ also released the minutes of the October 28 policy meeting,
when the board members released their semiannual Outlook Report, which
included the forecasts for real economic growth and consumer prices
through fiscal 2012 starting on April 1, 2012.
“Some members expressed the view that the clarification of the
policy time horizon as part of the BOJ’s comprehensive monetary easing
would stabilize medium- to long-term inflation expectations and
encourage a rise in the inflation rate,” the minutes said.
However, some board members were less optimistic on the price
outlook. “A few members held a cautious view regarding the momentum in
terms of bringing the inflation rate closer to the level of medium- to
long-term inflation expectations.”
As for developments in financial markets, the minutes said, “One
member expressed the view there was also uncertainty with regard to
financial markets’ reaction to the additional accommodation, as there
were signs that U.S. long-term interest rates were starting to rise,
following a downward trend.”
It also expressed concern that fiscal consolidation among
industrialized countries could weakened already subdued growth. “Some
members pointed to the risk that fiscal consolidation in the U.S. and
European countries might exert greater-than-expected downward pressure
on these countries’ economies.”
As for purchases of Japanese government bonds, according to the
minutes, “some members indicated that there was a need to deliberate on
the management of the BOJ’s bond purchases, for example, so that the
purchases would not be misunderstood as monetization, given that they
would not be subject to the ceiling set on the amount of banknotes in
circulation.” Some government officials have continued to call on the
BOJ to increase the size of outright JGB buying as it remains uncertain
whether and when Japan’s economy will be able to overcome years of
deflation.
On Oct. 28, the BOJ’s policy board voted unanimously to leave the
target for the overnight lending rate among commercial banks unchanged
in a range of zero to 0.1%, as widely expected, while deciding, also
unanimously, to buy lower-rated private-sector securities.
The BOJ on Oct. 28 projected in its semi-annual Outlook Report that
Japan’s economy should return to a sustained growth track under price
stability in fiscal 2012 after a slowdown in the second half of the
current year to March 31, 2011.
With upside and downside risks balanced going forward, “Japan’s
economy is expected to continue making steady progress toward
sustainable growth with price stability, although some more time is
needed,” the BOJ said.
Japanese core consumer prices were projected to show a 0.6% gain in
fiscal 2012 after rising a modest +0.1% in 2011 and falling an estimated
0.4% this fiscal year, according to the median forecasts by the
nine-member BOJ policy board.
tokyo@marketnews.com
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