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TOKYO (MNI) – A few members of the Bank of Japan policy board
predicted last month that the bank may have to ease credit further amid
growing uncertainty about global growth, the minutes of the BOJ’s Sept.
6-7 policy meeting released Thursday showed.

“A few other members expressed the view that further monetary
easing might become necessary depending on future developments given
that there remained heightened downside risks to economic activity, as
seen in, for example, uncertainty about the possible consequences of the
sovereign debt problems in Europe,” the minutes said.

But there was also a cautious view among the nine-member board on
easing the already very stimulative financial conditions in Japan.

“One member said that a further enhancement of monetary easing
could instead lead to instability in the financial system or prevent
monetary policy effects from spreading to the economy through a decline
in market liquidity and a decrease in financial institutions’ profit
opportunities, and therefore careful consideration was required to
ensure that such developments did not occur,” the minutes said.

The next BOJ policy-setting meeting is scheduled for Oct. 27, when
the board will release its semi-annual Outlook Report, presenting its
latest medium-term GDP and CPI forecasts through fiscal 2013.

At the Sept. 6-7 and Oct. 6-7 meetings, the BOJ board voted
unanimously to continue the bank’s very stimulative interest rate policy
by maintaining the target for the overnight lending rate among
commercial banks at zero to 0.1%, as widely expected.

The relative calm in the foreign exchange and stock markets appears
to have led to the board’s decision not to conduct further monetary
easing.

Last week, BOJ Governor Masaaki Shirakawa explained that the board
foresaw the current development — growing downside risks — when it
eased credit in August by raising the bank’s total financial
asset-buying to Y50 trillion from Y40 trillion, indicating that it is
still monitoring its effects.

On risks to Japan’s export-led recovery, the minutes said, “Many
members said that the risk of the sovereign debt problems in Europe
putting downward pressure on overseas economies, and consequently on
Japan, was increasing.”

Board members noted that developments in overseas economies were
“likely to be firm as a whole, led by high growth in emerging and
commodity-exporting economies,” but they also agreed that “downside
risks to the outlook for overseas economies had increased to some
extent,” according to the minutes.

“Many members expressed the view that there was a possibility that
an economic slowdown in the United States could be prolonged given the
limited room to boost the economy from the fiscal and monetary sides in
a situation where balance-sheet adjustments continued to weigh on the
economy.”

On the European economy, board members shared the view that the
improvement in economic activity in the euro area seemed to be pausing.

Some members said the effects of the sovereign debt problems were
starting to appear in economic activity “through disturbances in
financial markets and a deterioration in sentiment,” the minutes said.

“Members shared the view that, in a situation where risk aversion
among investors had intensified due to concern over debt problems in the
United States and Europe, global financial market were unstable and
fluctuating widely.”

tokyo@marketnews.com
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