TOKYO (Reuters) - Bank of Japan policymakers discussed the possibility of further easing, with one board member saying the central bank must overcome deflation by keeping its stance of taking some kind of policy response if its price outlook comes under threat, minutes of the central bank’s June 19-20 meeting showed on Friday.
The BOJ kept policy steady at the June meeting. At a subsequent meeting this week, the central bank stood pat but said it would ease “without hesitation” if a global slowdown threatens Japan’s economic recovery.
Others are also on guard, and the expectations of prolonged ultra-loose policies by major central banks have pushed down bond yields across the world including in Japan.
“The key to overcoming deflation was for the BOJ to maintain its stance of taking some kind of policy response if any changes emerged in the baseline scenario of the outlook for prices,” one board member was quoted as telling the June meeting.
All policy measures — including adjustments in short- and long-term interest rates, an acceleration in the pace of expansion in the monetary base, and an increase in the amount of asset purchases — should be deliberated when considering additional easing, the board member said.
Another said the BOJ needed to strengthen monetary easing amid changes in overseas economies such as growing expectations for further monetary easing in the United States and Europe.
“It was necessary to further consider in depth the feasibility of a wide range of additional easing measures, as well as their effects and side effects,” this member said.
The BOJ faces a dilemma. Years of heavy money printing have pushed rates below zero, narrowing financial institutions’ margin and leaving the central bank with much less ammunition than its U.S. counterpart to fight another recession.
BOJ Deputy Governor Masayoshi Amamiya said on Thursday the central bank could widen the band at which it allows long-term interest rates to move around its target, signaling its readiness to accept further falls in bond yields if driven by market forces.
At the June meeting, some members said it was “unnecessary” for the BOJ to follow too strictly the specified range of yield movement, with a view to mitigating the side effects of a prolonged monetary stimulus on market functioning, the minutes showed.
It was appropriate to continue to control the long-term yields “in a flexible manner”, they said.
Reporting by Tetsushi Kajimoto; Editing by Simon Cameron-Moore