TOKYO (MNI) – Many members of the Bank of Japan’s policy making
board voiced concern at their August 9-10 meeting over the impact of the
strong yen on the outlook for Japan’s economic and price developments,
the minutes released by the BOJ on Friday show.

“Many members raised the possibility that the appreciation of the
yen might depress growth in exports and corporate profits,” the minutes
said.

“Many members commented that attention should be paid to how the
appreciation and a consequent weakness in stock prices affected business
and consumer confidence,” the minutes added.

One member expressed the view that “the risk of the yen’s value
remaining at the recent level had increased.”

However, the policymakers didn’t see on August 9-10 an imminent
need to conduct additional monetary policy to cope with the strong yen.

The BOJ’s policy board on Aug. 10 voted unanimously to leave the
target for the overnight lending rate among commercial banks unchanged
at 0.1%, while repeating that the economy, facing both upside and
downside risks, is likely to remain on a recovery track.

The BOJ has maintained the rate target at 0.1% since December 2008,
when it lowered the rate from 0.3% at the height of the global financial
crisis. This rate is seen as the lowest possible without hurting market
functions.

BOJ Governor Shirakawa on Aug. 10 said that fluctuations in foreign
exchange rates do not directly dictate the BOJ’s monetary policy-making
because the forex impact on economic growth must be examined in a
comprehensive, global context.

“I don’t think there are any central banks in advanced economies
that regard levels of foreign exchange rates themselves as a target for
monetary policy,” he said, adding that the BOJ and other major central
banks formulate policy by checking various economic and price factors.

“Foreign exchanges are one of the factors that affect the economic
climate, but they do not immediately determine monetary policy,”
Shirakawa said.

But the BOJ’s concern intensified as the month progressed. The
board held an extraordinary policy meeting on Aug. 30 and decided to
ease policy further, introducing a six-month funding operation at a
fixed rate of 0.1% totaling Y10 trillion to cope with the downside risks
to Japan’s economic and price moves.

hinoue@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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