— BOJ Min: Members: Overseas Econ Slowdown More Than Expected
— BOJ Minutes: Members: Japan Recovery Delayed Till 1H of FY12
— BOJ Minutes: One said Need To Examine Future Policy Action

TOKYO (MNI) – Many members of the Bank of Japan’s policy board
expressed a concern over a possibility of deleveraging by European
banks, the minutes of the BOJ’s Jan. 23-24 policy meeting showed Friday.

May members were concerned that “European financial institutions
might accelerate the pace of reducing their assets as they were required
to attain a capital of 9% by the end of June 2012.” said the minutes.

“Some members commented that it was important for the Bank to be
well prepared to take policy actions — including measures to stabilize
the financial system — as the central bank, bearing in mind the risk
that the sovereign debt problems in Europe could cause a serious shock
to global financial markets and the global economy, thereby affecting
the financial system and financial conditions in Japan.

“One member expressed the view that it was necessary to examine
future possible actions while carefully considering the need to further
enhance monetary easing, such as through an increase in the total size
of the Asset Purchase Program, as well as the risks and costs associated
with the unconventional policy measures.”

The nine-member board pointed that lower growth prospects for
fiscal 2011 were due to a technical factor — a smaller carry-over
effect form 2010 — and that “a material factor of sharper-than-expected
deceleration in the pace of growth in overseas economies, due mainly to
the effects of the sovereign debt problems in Europe.”

“They agreed that the baseline scenario in the October 2011 Outlook
Report — namely, that Japan’s economy was likely to return to a
moderate recovery path — was being maintained, although the timing of a
recovery was likely to be slightly delayed to the first half of fiscal
2012, and that growth prospects for fiscal 2012 and 2013 would likely
remain broadly unchanged,” said the minutes.

“One member added that slight downward revisions to the member’s
forecasts of GDP growth for both fiscal 2012 and 2013 had been made,
taking into consideration that exports and business fixed investment
would be weaker due to the effects of appreciation of the yen, the
slowdown in overseas economies, and sluggish stock prices, although
these forecasts were broadly within the projected range in the October
Outlook Report.”

With regard to the background to the forecast that developments in
the CPI for fiscal 2012 were likely to be in line with the October
forecasts, one member explained that upward factors such as the upward
revision to the member’s forecast for crude oil prices were generally
offset by a downward factor, that is, the slower pace of improvement in
the negative output gap, according to the minutes.

As for the outlook for the CPI, one member acknowledged having made
slight downward revisions to the member’s forecasts, “mainly due to
sluggish inflation expectations,” although the Bank’s baseline scenario
was being maintained and these forecasts were broadly within the
projected range in the October Outlook Report.

“A few members expressed the view that, given that it was likely to
take time before positive inflation was established, attention needed to
be paid to the possibility that firms and households would have
increased expectations that prices were unlikely to rise even in the
medium to long term, in turn causing a weakening in actual price
developments,” the minutes said.

After its January policy meeting, the board slightly revised down
its assessment, saying, “Japan’s economic activity has been more or less
flat, mainly due to the effects of a slowdown in overseas economies and
the appreciation of the yen.”

In an update to its medium-term growth and inflation outlook
presented in October, the board revised down its median GDP forecast for
fiscal 2011 to -0.4% from +0.3%, as expected.

On the BOJ’s efforts to make the process of monetary policymaking
more transparent, some members noted that presenting the policy time
horizon was appropriate given the current developments in Japan’s
economy.

“They continued, however, that it was important for the Bank to
review its communication to the public on a continual basis, bearing in
mind that the Federal Reserve had been reviewing its own communication
policy.”

“One of these members noted that, in communicating to the public,
it was necessary for the Bank to clearly explain that the stimulative
effects on the economy brought about by the measure regarding the policy
time horizon would strengthen gradually as the economy recovered,” said
the January minutes.

At the ensuing Feb. 13-14 meeting, the BOJ board decided to boost
its already large-scale unconventional financial asset buying program
and adopting a more explicit 1% inflation ‘goal’ while keeping its
practically zero interest rate policy.

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