— Adds Details, Background From 13th Paragraph
TOKYO (MNI) – A few Bank of Japan board members at the Nov. 15-16
policy meeting warned that the BOJ must be watchful of recent weak
economic data and the negative impact of the strong yen on Japan’s
fragile economic recovery, according to the minutes released by the BOJ
on Tuesday showed.
“A few members said that they would carefully examine whether the
weakness observed in some economic indicators related after the previous
meeting was temporary,” the minutes showed.
“A few members pointed to the possibility that downside risks to
the economy had increased somewhat since the previous meeting.”
With regard to monetary policy, “members shared the view that it
was appropriate to steadily implement the BOJ’s decision in August and
October to increase the total size of the Asset Purchase Program through
the purchases of financial assets, and to monitor the spread of its
effects.”
The policymakers also discussed the impact of the persistently
strong yen on Japan’s export-led economic recovery.
“Members reaffirmed their view that, in a situation where global
market participants were intensifying their risk-averse behavior, the
yen – considered a relatively safe asset – was being bought mainly
because there was no better alternative,” the minutes showed.
They also said, “Where uncertainty regarding the outlook for
overseas economies was high – as in the current situation – due
attention needed to be paid to the possibility that the appreciation of
the yen would exert adverse effects through decreases in exports and
corporate profits as well as a deterioration in business sentiment.”
One member warned, “attention needed to be paid to the risk that,
if Japanese firms’ shift of production sites to overseas accelerated
sharply in response to the surge in the yen’s appreciation, this shift
would exceed the pace of development of new business and industries in
Japan, thereby prolonging adverse effects on domestic employment.”
The BOJ board at the November 15-16 policy-setting meeting voted
unanimously to continue the bank’s very stimulative, practically zero
interest rate policy, while lowering its economic assessment by noting
the pace of economic recovery has moderated.
The decision to maintain the target for the overnight lending rate
among commercial banks at zero to 0.1% was widely expected because only
three weeks ago the BOJ had boosted its asset-buying fund to protect the
export-led economic recovery from growing downside risks.
Also as expected, the BOJ slightly revised down its November
economic assessment from October, saying, “Japan’s economic activity has
continued picking up but at a more moderate pace due to effects of a
slowdown in overseas economies.”
Looking ahead, it said, “For the time being, Japan’s economy will
face an adverse effect from the slowdown in overseas economies and the
appreciation of the yen as well as from the flooding in Thailand.”
The November 15-16 meeting minutes also said, “one member
“expressed concern over whether business fixed investment would recover
as projected, partly because stock prices, which tended to precede fixed
investment, had suffered a substantial drop mainly reflecting ongoing
upward pressure on the yen.”
“Some members commented that some firms, particularly in
export-related industries, were revising downward their profit forecasts
for fiscal 2011 due to the effects of the earlier appreciation of the
yen and the slowdown in overseas economies, and this could lead to
weaker growth in business fixed investment and employment,” the minutes
showed.
“Members shared the view that attention should continue to be paid
to the possibility that the sovereign debt problems in Europe would have
stronger adverse effects on Japan’s financial markets in the future,
given the global financial markets’ high correlation with each other,”
they showed.
As for the U.S. economy, some members said, “concern observed
around summer over a recession had abated somewhat because car sales had
been firm and some other economic indicators had turned out to be
better than market expectations.”
But the board members maintain the view that the pace of growth in
the U.S. economy was likely to remain modest.
On the European economy, “Members shared the view that economic
recovery would inevitably be restrained, as the adverse feedback loop
could easily operate among the fiscal situation, the financial system,
and economic activity in an environment where financial markets
remained under persistent strain stemming from the sovereign debt
problems in Europe.”
The BOJ board members at the December 20-21 meeting downgraded
their economic assessment from November, marking the second consecutive
month, which added to expectations for a further easing by the BOJ in
the coming months.
The BOJ also released the minutes of an unscheduled policy meeting
on Nov. 30, at which the BOJ board voted unanimously to continue the
bank’s interest rate policy by maintaining the target for the overnight
lending rate among commercial banks at zero to 0.1%.
“Members agreed that global financial markets were under heavy
strain on the back of the sovereign debt problems in Europe, and that
the funding conditions of European financial institutions were
deteriorating,” the minutes of that meeting showed.
“With an increasing correlation between domestic and overseas
markets, the possibility could not be ruled out that Japan’s financial
system, and consequently financial conditions, would be adversely
affected should conditions in global financial markets deteriorate
further,” it showed.
The policymakers at the meeting decided to boost dollar-funding
operations with other major central banks, which they hope will ease
pressures in global money markets caused by the European sovereign debt
crisis.
Interest rates on the fixed-rate U.S. dollar funding operations by
the BOJ will be reduced by 0.5 percentage points, said the bank.
The new rate will be a prevailing U.S. dollar overnight index swap
market rate that corresponds to the duration of the loan plus 0.5
percentage points.
tokyo@marketnews.com
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