Fierce price wars are posing a threat to economic recovery by crushing smaller retailers, according to the minutes of the Nov. 17 Bank of Japan Policy Board meeting released Wednesday.

"Some board members noted such price drops are posing the risk of dragging down the economy by squeezing the profitability of small and midsize retailers, which cannot keep up with the price-cutting competition," the minutes say. "Some members said the intensification of the price-cutting competition is actually accelerating the bipolarization of the economy in view of the rising number of failures of small and midsize self-employed businesses."

The document also says "many board members" shared the view that intensified price-cutting among existing clothing makers, retailers and startups is "substantially responsible" for the recent expansion in the scope of consumer price drops.

The central bank periodically releases the minutes of meetings of the nine-member Policy Board, headed by BOJ Governor Masaru Hayami.

At the Nov. 17 meeting, the board voted 8-1 to leave unchanged the easy monetary stance that keeps the overnight unsecured call money lending rate very close to 0.25 percent.

On the recent stock market plunge, the minutes say, "Many members of the board" cautioned that a further drop in share prices would deal a blow to the confidence of households and businesses in the economy, as well as to the willingness of financial institutions to lend.

The Nikkei Stock Average closed at 13,914.43 Wednesday, down from 14,544.30 on Nov. 17, the day of the board's meeting.

The minutes quote a member as saying, "Unrealized gains on shareholdings have become paper-thin at many companies, so a further drop in share prices could deal a blow to the net balance of those companies."

Said another board member: "A further decline in share prices carries the risk of adversely influencing financial institutions' disposal of problem loans and their lending activities." Many Japanese banks annually sell sizable parts of their shareholdings in other companies and book the resultant capital gains to loan-loss provisions or to cover losses from irrecoverable loans.

During the six months to Sept. 30, 16 banks realized 1.27 trillion yen in equity capital gains to help them dispose of bad loans. The figure compares with 1.65 trillion yen in loan-loss charges incurred by the 16 banks during the period.