— Adds Details, Background From 8th Paragraph
TOKYO (MNI) – Two of the nine board members at the Bank of Japan
saw the need for further monetary easing in the future at the May 19-20
policy meeting but both said the economic climate didn’t warrant
immediate action, the minutes of the meeting released Friday showed.
One member noted it was “important to consider the appropriate
timing to implement additional measures by continuing to examine the
transmission mechanisms and side effects of each monetary easing measure
already taken,” the minutes said.
Deputy Governor Kiyohiko Nishimura didn’t make any proposals for an
additional stimulus measure at the May meeting. At the previous meeting
on April 28, he had called for raising the size of the BOJ’s
asset-buying program to Y15 trillion from the current Y10 trillion. His
proposal was voted down 8-to-1.
An unnamed board member told the May meeting that “the opinion that
the need for additional monetary easing was potentially strong, but
there was no particular advantage to increase the amount of the program
at this stage.”
The member noted that “judging from indicators related to the
outlook for economic activity and information obtained from business
contacts, a further deterioration in sentiment, which had previously
been feared, did not appear to have materialized,” the minutes said.
At the May and June meetings, the BOJ’s policy board voted
unanimously, as widely expected, 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%.
After the May meeting, the BOJ repeated its view given in its
semi-annual Outlook Report issued on April 28, saying, “for the time
being, attention should be paid to the downside risks to economic
activity, especially the possible effects of the disaster.”
Last October, the BOJ set up a program to buy financial assets —
ranging from government debt to corporate bonds and real estate
investment trusts — to help prevent investor risk aversion, which could
hurt sentiment and economic activity.
In the wake of the disaster, the BOJ on March 14 doubled the scale
of the unconventional operation to Y10 trillion from Y5 trillion.
Later, at the April 6-7 meeting, the BOJ board adopted a new
funding program for financial institutions hit by the earthquake and
tsunami, offering them one-year loans at a fixed rate of 0.1%.
At the May meeting, members said the aim of the new funding tool
was to support financial institutions “in their initial efforts” to meet
the demand for restoration and rebuilding of northeastern Japan hit by
the March 11 earthquake, the minutes showed.
As for the future course of action, the board agreed that “the BOJ
should continue to examine what kind of policy responses would be
necessary while determining when demand for funds for restoration and
rebuilding would become full-fledged.”
One member was quoted as saying that “it was important for the BOJ
to continue supporting restoration and rebuilding from the financial
side in a seamless manner.”
The minutes showed that the board agreed “risks to the outlook for
Japan’s economy were broadly unchanged from those presented in the April
2011 Outlook Report, and that attention should be paid for the time
being to the downside risks to economic activity, especially the
possible effects of the disaster.”
One member noted that “although the economy had started to move
toward recovery from the plunge immediately following the earthquake,
the salient point was whether such recovery momentum would remain intact
in and after the latter half of fiscal 2011,” the minutes said.
“This member continued that potential downward pressure on economic
conditions including the employment and income situation was large, and
there was still a high likelihood that the economy would follow a
moderate recovery path that deviated downward, in terms of the level of
economic activity, from the path projected prior to the earthquake.”
Many members said the adjustments would be temporary and the
gradual rising trend would remain intact, as the world economy,
particular emerging economies, continued to show relatively high growth,
the minutes said.
After the May meeting, BOJ Governor Masaaki Shirakawa said Japan
“cannot be optimistic” about its long-term electric power supply given
higher uncertainty over prospects of resuming nuclear power reactors
that are currently down for routine inspections across the country amid
growing fears of radiation leaks.
Shirakawa also told reporters on May 20 that in the short term, it
is “encouraging” to see concerns about power supply shortages during the
peak time in the summer have eased and some carmakers and electronics
firms plan to raise quake-hit production earlier than past projections.
tokyo@marketnews.com
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