Division on Japan’s monetary easing revealed by 2004 central bank minutes


Bank of Japan policymakers were divided in 2004 on whether to follow a policy of further monetary easing despite signs of economic recovery, according to minutes released Wednesday.

The bank expanded its quantitative easing at the policy meeting held Jan. 19 to 20, 2004, with then-Gov. Toshihiko Fukui suggesting that the BOJ should act more aggressively to lift the economy out of chronic deflation.

“We cannot fulfill our responsibility if we are satisfied only with an economy moving in line with the BOJ’s scenario,” Fukui said, according to the minutes, suppressing opposing views held by other members of the Policy Board.

The BOJ waited 10 years to release the detailed minutes of the board’s meetings held between January and June 2004, in accordance with its rules.

Under the quantitative easing policy, kept in place from 2001 to 2006, the BOJ targeted the reserves held by commercial lenders at the bank as its key short-term interest rate was already close to zero. The BOJ was trying to revive the economy by increasing the money those lenders can use freely, through money-market operations.

The BOJ’s current “quantitative and qualitative easing,” introduced in April 2013, also features providing ample liquidity to the banking system and supporting growth.

But it mainly involves massive purchases of financial assets such as long-term government bonds from financial institutions to raise the nation’s inflation rate to 2 percent within around two years.

At the January 2004 meeting, the nine-member board voted for additionally easing the BOJ’s policy by raising the target balance of current account deposits held by lenders to “¥30 trillion to ¥35 trillion” from the previous “¥27 trillion to ¥32 trillion.”

The monetary stimulus came despite signs of a moderate economic recovery and ran counter to the view of some board members that excess monetary easing could end up having a negative impact.

Fukui acknowledged that the BOJ must pay close attention to such a risk. But he also noted the need for the bank to prioritize conquering deflation, saying, “We should support (the recovery) through monetary policy as much as possible,” the minutes said.

The governor said the quantitative easing could “influence people’s expectations” of economic recovery, and that it is “extremely important to act to build expectations proactively.”

One of Fukui’s deputies, Kazumasa Iwata, echoed the view, while underscoring that “we need to make one more push if we consider exiting deflation.”

But some other board members were reluctant to expand the quantitative easing at that time.

“We are not in a situation where we can expect” relevant effects, Teizo Taya told the meeting, citing stability in the financial system with falling interest rates.

“Continuing to enhance monetary easing amid economic recovery could risk increasing costs when we exit the policy,” Miyako Suda said.

“It is extremely uncertain how much (the additional easing) would help improve the economy,” Kazuo Ueda said. But Ueda ended up voting for expanding the stimulus at the meeting, unlike Taya and Suda.

Fukui’s remarks on people’s expectations have something in common with current Gov. Haruhiko Kuroda.

Kuroda, who took office in March 2013, has stressed the need for actively influencing private entities’ inflation expectations as the central bank reinforces its commitment to achieve the 2 percent goal in or around fiscal 2015.