Some BOJ board members had doubts on policy overhaul: meeting summary

A Japanese flag flutters atop the Bank of Japan building in Tokyo

By Leika Kihara

TOKYO (Reuters) – Bank of Japan policymakers engaged in heated debate on the feasibility of overhauling its massive stimulus programme with some board members doubting whether it would enhance flexibility of monetary policy, a summary of opinions at the central bank’s September rate review showed on Friday.

At the review last week, the BOJ switched its policy target to interest rates from the pace of money printing, after years of massive asset purchases failed to jolt the economy out of decades-long stagnation.

Those in the nine-member board who voted for the decision to set a 10-year bond yield target said the new framework would allow the central bank to guide policy more flexibly than committing to the amount of bonds it buys, the summary showed.

But one member, likely one of the two dissenters to the decision, said it was uncertain whether the yield curve control would allow the BOJ to reduce its massive bond buying – deemed unsustainable by critics.

“On the contrary, there would be a risk that the bank might need to increase the pace of bond purchases in response to a spike in long-term interest rates,” the member was quoted as saying in the summary.

Even a member who voted for the decision warned that the yield-target could impair financial intermediation by pushing long-term interest rates into negative territory for a prolonged period, the summary showed.

“The BOJ does not intend to peg 10-year bond yields at this level for long in the future,” one member said, adding that it would review the level of its target – now set at around zero percent – at each policy meeting.

BOJ Governor Haruhiko Kuroda has said the central bank was ready to expand stimulus further using the new framework if necessary to achieve its 2 percent inflation target.

“If judged necessary for achieving the price stability target of 2 percent, the BOJ should respond flexibly, including modifications to the policy framework,” one member was quoted as saying, likely Kuroda himself or an advocate of his programme.

But several others in the board voiced doubts on the need to top up monetary stimulus with one member calling for more government efforts to strengthen Japan’s growth potential, the summary showed.

(Editing by Jacqueline Wong and Joseph Radford)