TOKYO (MNI) – Many Bank of Japan board members voiced concern over
the impact of the strong yen on the outlook for Japan’s prices,
including import prices, at the September 6-7 policy-setting meeting,
the minutes released by the BOJ on Friday showed.

“Many members referred to developments in import prices as a risk
factor for the outlook for prices, and pointed to the need to closely
monitor the degree to which the recent appreciation of the yen exerted
downward pressure on consumer prices,” the minutes showed.

It also said, “One member raised the possibility that the spread of
discussion regarding disinflation or deflation, which was of concern
with regard to advanced economies, might lower inflation expectations
(in Japan).”

The minutes indicated that the BOJ policy makers were worried about
the possibility they might have to change their baseline view on Japan’s
economy and prices in the wake of the strong yen and increased
uncertainty over the global economy.

A few members, according to the minutes, expressed concern over
weaker U.S. economy at the September meeting.

“A few members pointed to the risk of the U.S. economy growing only
slowly over a prolonged period, in view of the possibility that the
decline in U.S. long-term interest rates might indicate a decrease in
the expected nominal economic growth rate over the long term,” the
minutes said.

Regarding the impact of the strong yen, “Most members raised the
possibility that the appreciation of the yen might depress growth in
exports and corporate profits.”

But they didn’t see the need for conducting additional credit
easing as policymakers had already called an extraordinary meeting to
decide on the additional credit easing.

The BOJ board on Aug. 30 held an extraordinary policy-setting
meeting and voted unanimously to leave its target for the overnight
lending rate among commercial banks at 0.1%, while deciding, in a 8-to-1
vote, to expand its funding program at the bargain overnight rate by
starting a six-month operation totaling Y10 trillion.

The BOJ’s policy board on Sept. 7 voted unanimously, as widely
expected, to leave the target for the overnight lending rate among
commercial banks unchanged at 0.1%, while vowing that it stands ready to
take the necessary policy actions “in a timely and appropriate manner”
to support the economy.

“In the conduct of monetary, the bank will maintain the extremely
accommodative financial environment,” the BOJ said, repeating its recent
statement.

But it also added that it “will carefully examine the outlook for
economic activity and prices, and if judged necessary, take policy
actions in a timely and appropriate manner.”

The BOJ had previously kept the target at 0.1% since December 2008,
when it lowered the rate from 0.3% at the height of the global financial
crisis. This rate was seen as the lowest possible without hurting market
functions.

This week however, the BOJ announced a drastic shift in policy,
cutting the target for the already super-low overnight interest rate to
a range of zero to 0.1% in order to counter growing risks of an economic
slowdown.

The BOJ also said it will also consider launching a temporary fund
for buying a total of Y5 trillion in financial assets including Japanese
government bonds, commercial paper, corporate bonds, exchange-traded
funds (ETF) and Japan real estate investment trusts (J-REIT).

On the U.S. economy, the minutes of the September meeting also
noted, “A few members commented that the pace of deceleration was faster
than expected, although the economic state could not be described as a
recession yet.”

Regarding the global economy, the minutes said, “Some members said
that developments in economic indicators and financial markets suggested
that uncertainty about the outlook had heightened.”

The representative from the Ministry of Finance emphasized the need
for the BOJ to consider taking more action, saying, “the Japanese
economy faced heightened risks of experiencing negative impacts from the
possibility of further and prolonged appreciation of the yen and a
possible slowdown in overseas economies.”

He also said, “The government expected the BOJ to conduct monetary
policy in an appropriate and flexible manner in response to economic and
financial developments.”

The minutes of the August 30 extraordinary policy-setting meeting
also released by the BOJ on Friday showed, “Some members added that the
pace of economic recovery was likely to slow temporarily in the near
future mainly because a waning of policy effects would dampen durable
goods consumption.”

It also said, “One member expressed the opinion that close
examination was necessary to judge whether economic growth would be
slightly weaker than expected in the interim assessment” made in July.

Many board members voiced concern over the impact of the strong yen
on the outlook for Japan’s economic and price moves.

But according to the minutes, one member said, “an appreciation of
the yen did not necessarily result in only negative effects for Japan’s
economy in the long run, but attention should be paid to the stock
market’s tendency to regard it as a significant negative factor.”

At the August meeting, Miyako Suda, the longest-serving BOJ policy
board member, voted against the introduction of a six-month
fund-injecting operation and a substantial increase of the amount of
funds to be provided through the new operation.

Suda said, “recently released economic indicators were broadly in
line with the BOJ’s baseline scenario, and more time should be taken in
examining the possible spillover effects on economic activity of the
appreciation of the dyen and the fall in the stock prices, together with
the effects of factors such as the duration of such in stability, in the
length of time lag for the spillover, and the possibility the market
view having becoming too pessimistic.”

She also said, “introducing the new measure might be interpreted as
a countermeasure to the instability of foreign exchange rates, and might
heighten the risk of causing an economic bubble to form in the long
run.”

In March, both Suda and Tadao Noda voted against expanding the
three-month funding operation to Y20 trillion from the original Y10
trillion.

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

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