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BOJ members troubled by 2% target: minutes

Kyodo

Some Bank of Japan policymakers pointed to the difficulty of achieving 2 percent inflation at their Jan. 21-22 meeting when the central bank decided to introduce the target, according to the minutes released Tuesday.

Other Policy Board members, however, said it was “meaningful” to revise the numerical expression of the BOJ’s price policy at that time, arguing that if the bank and the government clarified their efforts to work in concert toward that goal, it would likely help arouse inflation expectations among firms and households.

They also called on the government to “aggressively” promote steps for spurring the competitiveness and growth potential of the domestic economy while the BOJ would pursue monetary easing toward the inflation target, the minutes said.

The BOJ decided to use the term “price stability target” instead of the previous 1 percent “price stability goal,” as understanding of flexible operation of monetary policy was “spreading steadily.” Two of the nine Policy Board members, Takahide Kiuchi and Takehiro Sato, voted against introducing the price target.

Most members expressed the view that setting a 2 percent inflation target was desirable, with some saying setting the target at the same level as other advanced economies would contribute to “maintaining a balance in currency values from a long-term perspective.”

But a few members said it would be more appropriate for the BOJ to maintain its numerical expression for the target to aim for inflation in “a positive range of 2 percent or lower” and set a target of “1 percent for the time being,” pointing out that 2 percent inflation had rarely been achieved in the past two decades.

The members also argued that aiming for a 2 percent year-on-year increase in the consumer price index before confirming the effects of efforts to enhance Japan’s growth potential could undermine the credibility of monetary policy or disrupt communications with financial markets due to uncertainty about achieving the target.

On releasing a joint statement with the government, BOJ Gov. Masaaki Shirakawa attached importance to the government’s role in “creating a more favorable environment” to maximize the effects of monetary easing and said the Abe administration had signaled its stance to formulate steps to strengthen Japan’s competitiveness, the minutes showed.

He added that it is “important at this time to clearly acknowledge each other’s roles and strengthen their policy coordination, and to indicate this intention to the public in the form of a joint statement,” according to the minutes.

In the January meeting, the BOJ also decided to adopt “open-ended” easing steps, such as buying government bonds and other relatively safe financial assets from financial institutions with no deadline. Under the steps, the BOJ will start buying around ¥13 trillion worth of financial assets every month from 2014, to stimulate further easing.