Bank of Japan (BOJ) board members said they need to counter the mistaken perception that central bank asset purchases will automatically increase, the minutes of a meeting last month show.
“Members made note of some misunderstanding that the bank would continue to increase the size of its program in an automatic manner,” until the BOJ’s 1 percent price goal is met, according to the record of an April 27 meeting released yesterday in Tokyo. “They agreed that the bank needed to fully explain that it made decisions on its monetary policy stance after carefully assessing the economic and price situation.”
The yen’s 5 percent climb against the US dollar since mid-March is weighing on the profits of Japanese exporters, suggesting that lawmakers and manufacturers will continue to press for more stimulus. The BOJ needs to avoid being seen financing government deficit spending and has highlighted limits to what monetary policy alone can achieve in fueling growth and ending deflation.
“The BOJ is emphasizing they will act according to the price outlook, which will be affected by developments in currencies,” Tokyo-based Shinkin Asset Management chief economist Hiroshi Miyazaki said. “Whether it wants to or not, the BOJ won’t have a choice but to increase asset purchases if the yen strengthens significantly.”
The yen traded at 79.35 per US dollar as of 2:42pm in Tokyo yesterday. The central bank has increased its asset-purchase fund twice this year, with the first move in February helping to weaken the yen against the US dollar. Renewed concerns over Europe’s are now lending support to the currency.
BOJ Governor Masaaki Shirakawa and his board added ￥10 trillion (US$126 billion) to the purchase program last month.
The government faces the challenge of extending an economic recovery after last year’s earthquake and tsunami without worsening the finances of a nation already bearing the world’s biggest public debt burden.
Fitch Ratings last week cut Japan’s sovereign-debt rating, saying the government’s plans for fiscal consolidation look “leisurely.”
A few BOJ members said last month that it was important the central bank makes it clear that its bond purchases are not meant to finance government debt, the minutes showed.
BOJ staff members at the gathering said increasing holdings of exchange-traded funds, which are bought through the facility, entail “a considerable risk of price volatility,” according to the minutes.
The board refrained from extra easing at a meeting last week, while Shirakawa pledged to continue “powerful monetary easing.”
The central bank forecasts price growth of 0.7 percent in the year starting April next year.
The yield on Japan’s benchmark 10-year debt fell one basis point to 0.875 percent.