A member of the Bank of Japan policy board suggested expanding the monetary base to provide more funds to the money market during a Feb. 12 board meeting, according to the minutes of the meeting released Wednesday.
The nine-member policy board, headed by BOJ Gov. Masaru Hayami, rejected a proposal made by Nobuyuki Nakahara that the central bank should expand the monetary base — the sum of cash in circulation and reserve deposits private banks put into the BOJ.
The board opted instead to guide the unsecured overnight call money rate — a key short-term interest rate — down to 0.15 percent and eventually closer to zero as a way of ensuring an ample supply of funds.
During the meeting, Nakahara claimed that the traditional monetary easing method — the reduction of interest rates — is not effective. But some members dissented, saying that, as long as there is room to lower the overnight call rate, the BOJ should use that means first to support economic activity. One member stood out in expressing doubt about the feasibility of setting a monetary base target.
In choosing a policy of guiding the overnight rate further down, some members were concerned that the rise in long-term interest rates around that time, coupled with the yen’s appreciation, would put downward pressure on the economy, according to the minutes.
The minutes also show that all of the members expressed opposition to expanding the bank’s outright purchase of government bonds. Along with the policy change, the bank announced after the February meeting that it will maintain the current pace of outright purchases at 400 billion yen a month.