The Bank of Japan in February considered both easing and tightening its monetary policy to help boost the ailing economy, according to minutes of the BOJ's Monetary Policy Meeting released March 18.
The minutes summarize discussions at the Feb. 13 meeting of the six-member Policy Board, which unanimously decided to keep the central bank's ultra-easy monetary policy unchanged.
Policy Board members, including Gov. Yasuo Matsushita, expressed their belief that a further easing of monetary policy could help improve businesses' fixed investment and inventory adjustment. But they also said its direct stimulating effect on demand would be limited because of the extremely weak confidence of firms and households, according to the minutes.
Members also discussed the possibility of lower interest rates inducing excessive risk-taking activities, such as excessive investment in foreign currency-dominated assets, with the planned implementation of the new Foreign Exchange and Foreign Trade Law on April 1.
The minutes do not explicitly refer to the official discount rate, which has been kept at 0.5 percent since September 1995. The Policy Board then examined mounting arguments, especially from some members of the ruling Liberal Democratic Party, for a raise in interest rates to boost the economy.
LDP members in favor of higher rates pointed out that, among other things, the current low interest rates have been squeezing the incomes of households that live on their savings interest. But all members of the Policy Board agreed that a raise in interest rates before a full economic recovery could have a negative impact on the entire economy, as the current low rates support corporate activities, which in turn help employment and income, the minutes say.