TOKYO (MNI) – A few Bank of Japan board members said at the
October 27 board meeting that increasing outright Japanese government
bonds with a remaining life of two years is effective in stabilizing
foreign exchange rates, the minutes released by the BOJ on Monday
showed.

Many board members still didn’t see the need to buy longer-term
JGBs, although private economists and some lawmakers called on the BOJ
to do so.

“A few members commented that the purchases of JGBs with a
remaining maturity of one to two years was also effective in terms of
ensuring stability in the foreign exchange market, considering the
current situation where the correlation of the yen-dollar exchange rate
with the two-year interest rate differential between Japan and the
United States was high relative to its correlation with the interest
rate differential of other maturities,” the minutes showed.

BOJ staff, according to the minutes, explained to the board
members, “With regard to market developments, although room for a
further decline in yields on T-bills was limited, there was still some
room left for a decline in yields on JGBs with a remaining maturity of
about one to two years.”

The BOJ’s policy board voted unanimously on Oct. 27 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 board decided, by an 8-to-1 vote, to expand its
asset-buying program to Y55 trillion from the current Y50 trillion to
support Japan’s export-led economic recovery amid growing downside
risks.

Board member Ryuzo Miyao, a former economics professor, voted
against the Y5 trillion increase in the asset-buying program, proposing
instead a Y10 trillion rise to Y60 trillion.

Miyao, according to the meeting minutes, said, “downside risks to
economic activity and prices for the projection period were increasing
with the decline in firms’ and households’ inflation and growth
expectations, the amount of increase in the (asset-buying) program
should be significant – namely, about Y10 trillion – akin to the August
decision.”

Under the enhanced program, the BOJ will boost its purchases of
long-term Japanese government bonds to Y9 trillion from Y4 trillion.

The increase in the asset-buying program was the first since Aug.
4, when the BOJ raised its scale to Y50 trillion from Y40 trillion in a
bid to alleviate the adverse effects of the strong yen and heightened
uncertainty over the global economy.

tokyo@marketnews.com
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