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TOKYO (MNI) – Some Bank of Japan board members warned that downside
risks to Japan’s recovery from deflation and the March earthquake
disaster appeared to be rising, according the minutes of the Oct. 6-7
BOJ policy meeting released on Tuesday.
“Some members added that downside risks to economic activity and
prices could have increased to some extent compared with the time of the
previous meeting (on Sept. 6-7), mainly reflecting the fact that global
financial markets had become unstable due to the worsening of the
sovereign debt problems in Europe,” the minutes said.
“Some members expressed the view that it was important for the BOJ
to continue to take actions in an appropriate manner, as necessary.”
“One of these members added that furthering monetary easing might
become necessary depending on future developments, a view this member
maintained from the previous meeting,” the minutes said.
The BOJ’s policy board stood pat at the Oct. 6-7 meeting as it
continued to monitor the effects of its “bold” monetary easing conducted
on Aug. 4 in order to stop the yen’s rapid rise from hurting Japan’s
export-led recovery.
The BOJ board has voted unanimously 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%, as expected.
But at its latest meeting on Oct. 27, the BOJ also decided to ease
credit further by increasing the amount of its financial asset-buying
program to Y55 trillion from Y50 trillion, as the yen hit record highs
against the dollar.
The bank warned that overseas economies will show slower growth for
now, citing the lingering sovereign debt crisis in Europe and the long
process of reducing household debt in the U.S.
On the outlook, the minutes said, “Members concurred that how
Japan’s economy would be affected by the uncertainty regarding the
developments overseas and by the ensuing fluctuations in the foreign
exchange and financial markets continued to warrant the most attention.”
“Many members expressed the view that there was an increasing risk
that growth in Japan’s exports might become weaker than expected, as the
sovereign debt problems in Europe were putting downward pressure on
overseas economies as a whole,” the minutes said.
“A few of these members added that due attention needed to be paid
in particular to a possible dampening in overseas demand for automobile
as well as information and communication equipment,” they said.
“Some members noted that it was necessary to pay attention to the
possibility that the yen’s appreciation to date would not only decrease
exports and corporate profits, but also affect a wider range of areas of
the economy through a deterioration in business and household
sentiment.”
One member told the meeting that “attention should be paid to the
risk of a delay in achieving price stability, partly due to the decline
in the pricing power (of domestic firms) as well as the deterioration in
business sentiment caused by the yen’s appreciation.”
The minutes also showed “many members expressed the view that
concerns over the financial soundness of European financial institutions
that held a large amount of European government bonds were heightened in
a situation where fiscal consolidation and structural reforms in Greece
were not proceeding smoothly.”
“These members said that anxiety over the European financial system
as a whole was intensifying.”
tokyo@marketnews.com
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