Some Bank of Japan Policy Board members told a meeting last month that a major boost in government spending and an active foreign exchange policy are needed to quickly overcome deflation, according to minutes released Wednesday.

“Some members said that to make the inflation rate positive within a relatively short period, substantially expanding fiscal spending or conducting an active foreign exchange rate policy would have to be considered as policy options,” the minutes say.

If an inflation target were set by the central bank alone, the members said, it would “not be credible” because fiscal and foreign exchange policy is under the control of the Finance Ministry, not the BOJ, the minutes say.

“If Japan were to prioritize realizing a positive inflation rate with a certain time limit, it would be essential for the government to give a concrete outline of how it would conduct fiscal and foreign exchange policy to achieve it,” they said.

At the two-day meeting, which began Jan. 21, the BOJ policy panel left its monetary policy unchanged, despite calls for the central bank to do more to fight deflation.

“Members agreed that it was appropriate to maintain the current guideline for money market operations, given that there was no significant change in economic and financial developments since the previous meeting and that there was stability in financial markets as a whole,” the minutes say.

The panel also kept the amount of monthly outright purchases of long-term government bonds at 1.2 trillion yen. However, one member pointed out the need to examine this limit, given the possibility that the BOJ may have to increase its purchases of government bonds in the future, the minutes show.

Meanwhile, a Finance Ministry representative at the meeting as an observer urged the BOJ to increase its monthly outright purchases of government bonds to 2 trillion yen and consider temporarily lifting the BOJ’s limit on government bond holdings, the minutes say.

But one board member warned that the bond market seemed “somewhat overheated” recently, noting that market participants were not factoring more than 1 percentage point of inflation risk into yields on bonds with 20 years’ maturity, according to the minutes.

“The member expressed the view that given the current market situation, the risk that long-term interest rates would increase considerably once people’s expectations shifted upward should be kept in mind,” the minutes say.

Regarding calls for the BOJ to purchase exchange-traded funds to bolster stock prices, one BOJ panel member said the aim of such calls was unclear, adding it would be “reckless” for the bank to take such action, the minutes say.

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