The Bank of Japan’s policy-setting panel voted 8-1 to cut its official discount rate to 0.35 percent from 0.5 percent at its Feb. 9 meeting amid concern over the future of the Japanese economy, according to the minutes of the meeting released Friday.
The BOJ Policy Board also voted 6-3 to leave the overnight unsecured call money lending rate unchanged at around 0.25 percent, while voting unanimously to introduce a “Lombard type” lending facility, in which it extends loans to private financial institutions with securities as collateral, according to the minutes.
The minutes show the majority of board members considered a return to the “zero-interest-rate” policy of guiding the overnight call money rate to around zero as they agreed the economy is in a trend of gradual recovery.
At the Feb. 9 meeting, the BOJ had been under political pressure to reinstate the zero-rate policy to support the nation’s economic recovery because the central bank’s termination of the policy in August, after 18 months in effect, was viewed as partly responsible for the economy’s slowdown.
Many board members observed that “Japan’s economy continued to recover gradually, but the pace was slowing due to decelerating export growth,” according to the minutes.
“Downside risks to the economy, such as a further slowdown in overseas economies and negative developments in capital markets at home and abroad, were becoming more distinct, and prices were expected to be somewhat weak,” they noted. Because of mounting uncertainties over the economy, the board members recognized a need for the BOJ to consider employing new measures to increase the effects of its easy monetary policy, according to the minutes.
Following the Feb. 9 meeting, the board decided at its Feb. 28 meeting to cut both the overnight call rate and the official discount rate by 0.1 percentage point to 0.15 percent and 0.25 percent respectively.
At its last meeting on Monday, the panel adopted quantitative monetary easing, shifting its monetary policy target from the overnight call rate to the balance of funds held in current accounts at the central bank, effectively resuming the 18-month-old zero-rate policy it abandoned in August.
At the Feb. 9 meeting, Eiko Shinotsuka objected to the cut in the official discount rate.
“The scope for further monetary policy easing was limited and the bank should therefore reserve some room for maneuvering so as to be able to employ the measures available to it more effectively,” Shinotsuka was quoted as saying.
As for the overnight call money rate, Nobuyuki Nakahara, Teizo Taya and Kazuo Ueda were opposed to keeping the target rate around 0.25 percent, the minutes show.
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