–Adds More Details, Background From 11th Paragraph

TOKYO (MNI) – Many members of the Bank of Japan policy board showed
their flexible stance on future price rises, saying that it is necessary
for the central bank to accept some inflation as a safety margin,
according to the minutes of the April 30 policy-setting meeting released
on Wednesday.

This may be interpreted to mean that the BOJ policymakers will
likely tolerate a small rise in consumer prices and will not consider
taking policy action immediately after Japan’s consumer prices shows
signs of rising.

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

The minutes also showed that most on the policy board feel that the
Consumer Price Index is an accurate measure of price pressures in the
Japanese economy.

“Many members expressed the view that no large measurement bias
remained in the CPI in Japan,” the minutes said.

As for the understanding of medium- to long-term price stability,
the minutes said: “The figure representing many members’ understanding
was around 1%, within a range of 0.5% to 1% in either direction.

The BOJ said on April 30 that its policy board voted unanimously to
leave the target for the overnight lending rate among commercial banks
unchanged at 0.1%, as widely expected.

At the same time, the BOJ board confirmed that Japan needs to
“strengthen the foundations for economic growth,” according to the
Statement on Monetary Policy released after the one-day policy-setting
meeting.

To this end, the board agreed that “it was necessary for the bank
to make new efforts to contribute to strengthening the foundations for
economic growth.”

The chairman of the board, Governor Masaaki Shirakawa, has told the
BOJ staff to “examine and report …. on possible ways to support
private financial institutions in terms of fund providing with a view to
strengthening the foundations for economic growth.”

The board reviewed its “understanding” of its price stability
mechanism but maintained that Japan’s annual inflation rate should
settle somewhere in a range of above zero to 2%.

As for CPI, one member said that the “understanding was expressed
as a range from 0.5 to 2 percent, and the midpoint was slightly over 1
percent,” according to the minutes.

“Some members referred to a view outside the Bank that the
experience of the recent financial crisis suggested that it was
necessary to have a large safety margin.”

One member also said that it was important that the public’s
perception of the level of inflation remain stable, the minutes said.

On the conduct of monetary policy, the minutes said the members
agreed to maintain the current extremely accommodative financial
environment.

“A few members expressed the opinion that the experience of the
recent global financial crisis suggested that, in the conduct of
monetary policy, it was necessary to make wide-ranging assessments of
not only stability in price measures such as price indexes but also
through the accumulation of financial imbalances as observed in, for
example, asset prices and credit aggregates.”

Some members also said that the BOJ should continue to give due
consideration to ensuring the functioning of the market while continuing
to provide ample funds, it said.

Regarding the risk factors to the outlook for economic activity,
members were in agreement that the upside and downside risks facing
Japan had become more balanced, the April 30 minutes showed.

However, the BOJ board members voiced concern over various downside
risks that could emerge from events in international financial markets,
such as developments in the Greek sovereign debt problem.

“A few members commented that governments’ fiscal condition had
worsened, not only in Greece but also in a number of advanced economies
including Japan, and heightening fiscal risks warranted more careful
attention,” the minutes showed.

Also, many members expressed concern about the economic outlook in
emerging countries, saying, “emerging and commodity-exporting economies
had been recovering more rapidly than expected, and if the authorities
are slow to take appropriate policy responses, there was a certain
risk that economic activity might overheat,” the minutes showed.

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

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