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Overseas weakness worries BOJ

Kyodo

Some Bank of Japan policymakers pointed to weakening in the economies of China and emerging countries as a reason why overseas demand was likely to fall short of projections, the minutes of their meeting last month showed Tuesday.

During the July 10-11 Policy Board meeting, some members also called on the government to steadily promote measures toward fiscal consolidation, saying that maintaining credible fiscal management is crucial to ensure the stability of interest rates, according to the minutes.

On the economy, most members said it was starting to recover moderately, but one noted “some more time should be taken to determine whether the word ‘recovery’ was appropriate in describing the current economic situation,” citing such factors as uncertainty in key overseas markets.

But a few members expressed the view that it was fitting to use the term because various indicators were at fairly high levels and a virtuous cycle appeared to have started operating, the minutes said.

The BOJ eventually said in a statement after the meeting that the economy was “starting to recover moderately,” using the word “recover” for the first time in 2½ years.

Regarding prices, a few members expressed the view that the year-on-year rate of change in the consumer price index, excluding fresh food, would rise until around this summer due in part to a reaction to declining energy prices last year. However, the trend may come to a pause thereafter.

In the longer term, most members shared the view that consumer prices were likely to continue increasing due to the improving supply and demand balance and rising inflation expectations, and that the BOJ was likely to come close to its 2 percent inflation target toward the latter half of the projection period, from fiscal 2014 to fiscal 2015.

Still, a few members took a more cautious view of the price outlook compared with the forecasts in the baseline scenario, mainly because it seemed highly uncertain whether changes in inflation expectations would lead to a rise in the actual rate of inflation, the minutes said.