— Adds Details, Background From 16th Paragraph

TOKYO (MNI) – The need for additional easy monetary policy in Japan
may have increased, judging from a worsening of economic conditions and
a drop in public sentiment, one Bank of Japan board member said at the
April 28 policy-setting meeting, according to the minutes of that
meeting released on Wednesday.

That particular member was however not identified as Kiyohiko
Nishimura, who had been cited proposing to increase the asset-buying
program by Y5 trillion to Y15 trillion at the meeting.

“A different member expressed the view that the need for additional
monetary easing had increased, taking into account the current outlook
for economic activity and prices,” this morning’s minutes showed.

But the member didn’t see any imminent additional easy policy,
saying, “it was important to examine the specifics and timing of
additional measures….”

That member pointed to, “Whether there was room left for additional
purchases of risk asset, taking into account factors including their
market size; the effects and transmission mechanisms of each policy
measure included in the comprehensive monetary policy, which had been
effective as a whole; the side effects accompanying the unconventional
policy measures; and the appropriate timing of policy action, taking
into account the time lag before the effects materialized.”

The member’s comments increased speculation that the BOJ will
consider taking additional policy easing actions in the coming months as
market players hadn’t expected any board member other than Nishimura to
make such an explicit call for additional policy easing.

The BOJ’s policy board on April 28 voted unanimously 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%.

But Nishimura proposed to raise the scale of its asset-buying
program further to counter any worsening of sentiment among businesses
and households in the wake of the March 11 disaster. His proposal was
subsequently defeated 8 to 1.

The majority of the board believed that the current time was ideal
to see the impact of the recently bolstered program to buy a wide range
of financial assets, including Japanese government bonds and riskier
assets like real estate investment trusts.

The BOJ also decided at the April 28 meeting, it will extend
one-year loans to financial institutions in disaster areas at a fixed
rate of 0.1%, but has not yet said whether those lenders can roll over
the maturing loans.

The central bank is widely expected to start providing loans in May
but hasn’t mentioned any schedule.

The BOJ said it will limit loans to each financial firm at Y150
billion and accept applications for the loans until Oct. 31, 2011.

The BOJ board on April 28 projected that Japan’s economy will slump
in the near term due to the effects of the March 11 earthquake and
tsunami but maintained its medium-term projection that the economy will
return to a moderate recovery path through fiscal 2012, according to the
bank’s semi-annual Outlook Report released on April 28.

The BOJ board slashed their consensus fiscal 2011 real GDP forecast
to +0.6% due to effects of the March 11 disaster from their January
projection of +1.6%.

However, the board revised up its growth forecast for fiscal 2012
to +2.9% from +2.0% forecast in January, as the country rebuilds from
the disaster.

At this month’s May 19-20 policy-setting meeting, Nishimura didn’t
propose any increase in the asset-buying program.

Today’s minutes also stated, “Many members said that it was
necessary to accept some inflation as a safety margin that acted as a
buffer against the risk of falling into a vicious circle of declining
prices and deteriorating economic activity.”

“One member expressed the opinion that it was important to retain
some degree of a safety margin, since Japan’s potential economic growth
rate was low and there was limited room for the government to take
fiscal policy action in the medium to long term.”

Japan’s potential economic growth rate is estimated to be about
+0.5%, the BOJ said.

“A different member, while agreeing that a safety margin was
necessary, said that it was difficult to deal with serious problems such
as a financial crisis ex-post even with a relatively large safety margin
and that it was important to instead aim at preventing any accumulation
of financial imbalances ex-ante,” the April 28 minutes said.

However, some members warned, “if the specific attracted too much
attention, thereby restricting the central bank’s monetary policy
action, this would induce large fluctuations in prices.”

As for consumer inflation, “A few members said that the possibility
that the global environment surrounding prices was shifting toward
inflation could not be ignored, and therefore it was necessary to
carefully monitor how this would affect prices in Japan,” the minutes
said.

“A few members said that it had not been expected the accident at
the nuclear power plant would develop into such a serious and lingering
problem, and that uncertainty regarding economic activity had heightened
as a result.”

On the other hand, many members “expressed the view that
uncertainty, while remaining high, had started to diminish because
prospects for the restoration of the supply chain were gradually
becoming more certain.”

“Pre-emptive measures were being taken from both the supply and
demand sides against electricity shortages expected in the summer, and
strains in financial markets looked less likely to intensify,” they
added.

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

[TOPICS: M$J$$$,M$A$$$,MMJBJ$,MAJDS$,MT$$$$]