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TOKYO (MNI) – A few Bank of Japan policy board members warned that
the basic trend of Japan’s prices may be weakening in the wake of the
slowing Japanese economy at the September 18-19 policy-setting meeting,
the minutes released by the BOJ on Thursday showed.

“A few members commented that price indicators such as the trimmed
mean CPI had been relatively weak for the past few months, and price
trends might be weakening somewhat,” the minutes showed.

The minutes also reported: “One members said that, given the
developments in wages, a cautious view regarding the outlook for price
was inevitable.”

“Some members said that, if the economy more or less leveled off
for the time being, the pace of improvement in the negative outlook gap
might slow, leading to some deceleration in the pace of increase in the
CPI,” the minutes also said.

As a result, the policy makers shared the view that it was
appropriate for the BOJ to conduct further easy policy at the September
meeting

One member said, “If policy responses were behind the curve, there
was a risk that the credibility of the BOJ’s monetary policy might be
undermined, and therefore it was necessary that the BOJ clearly indicate
to the market its stance on such policy by taking action at this time.”

At the September meeting, the BOJ policy board voted unanimously to
jack up the target of its financial asset-buying program to Y80 trillion
from Y70 trillion, citing further global economic slowdown.

The first increase in the asset purchase fund since April will
comprise a Y5 trillion rise each in Japanese government bonds and
treasury discount bills.

The policymakers also decided to scrap the minimum bidding rate
(currently 0.1%) for the BOJ’s outright purchases of JGBs and corporate
bonds in order to invite more bidding from banks and thus avoid
undersubscription.

Meanwhile, the BOJ board also voted unanimously to keep its zero
interest policy, leaving its target for the overnight interest rate
among commercial banks at zero to 0.1% since October 2010, when it
lowered it from 0.1% as part of “comprehensive monetary easing.”

With regard to further easy policy, “One member expressed the view
that, together with these purchases of government securities, increasing
the size of purchases of risk assets would further encourage a reduction
in risk premiums and thereby have a positive impact in terms of
strengthening the transmission mechanism of the effects of the purchases
of government securities.”

“A different member expressed the view that it might be necessary
for the BOJ to devise further ways to boost inflation expectations, such
as exerting influence on foreign exchange rate,” the minutes said.

The minutes also said, “One member pointed out that, in the face of
such various risk factors, Japan’s economy would continue to be highly
vulnerable to negative shocks for some time.”

“A few members expressed concern that, if the deceleration in
overseas economies was prolonged, the negative impact on corporate
profits and the employment and income situation could feed through into
domestic demand, thereby constraining the virtuous circle from operating
properly.”

The minutes also said, “A few members said that it was necessary to
closely monitor whether the appreciation of the yen and the fall in
stock prices would exert a negative impact on business fixed investment
and private consumption through deterioration in business and household
sentiment.”

tokyo@mni-news.com
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