Most BOJ Members Saw Receding Economic Risks at June Meeting

Tokyo, Aug. 5 (Jiji Press)–Most Bank of Japan policymakers cited receding risks of a significant economic downturn at the June 15-16 policy meeting, in which the central bank decided an interest rate hike, according to minutes of the meeting released by the BOJ on Wednesday. The Policy Board members shared the recognition partly because progress has been made in “securing alternative sources of supply for raw materials that are highly dependent on the Middle East,” the minutes showed. Many pointed to a need for a rate hike amid the risk of underlying inflation exceeding the BOJ’s 2 pct price stability target. Noting that the neutral interest rate, which neither stimulates nor cool the economy, appears to be around 2 pct, one member said that the BOJ should consider the possibility of raising interest rates every few months. Meanwhile, another member said the bank should “hold the policy interest rate steady at this point” because a rate hike “could suppress aggregate demand by curbing firms’ business fixed investment, potentially inducing simultaneous declines in inflation and in production and employment.” At the June meeting, the BOJ decided to raise its target for the unsecured overnight call rate, Japan’s benchmark short-term interbank lending rate, by 25 basis points to around 1 pct. The Policy Board also decided to suspend the reduction in the BOJ’s purchases of Japanese government bonds in April next year. Most members agreed that if the reduction in JGB purchases continues, that might have “an unforeseen impact on market stability.” In contrast, one board member said that there is “no reason at all” to halt the reduction, arguing that no disruption has occurred in the JGB market. If the reduction is perceived by the market as “fiscal financing or as an attempt to lower long-term interest rates,” this could “undermine the credibility” of the central bank, the member added. END [Copyright The Jiji Press, Ltd.]