Some members of the Bank of Japan’s board voiced concern that tweaking its ultraeasy monetary policy could spark an unintended rise in interest rates, according to minutes of their July meeting released Tuesday.
The Policy Board voted at the meeting to keep its benchmark for 10-year government bond yields at around zero percent while saying that yields “may move upward and downward to some extent.”
One member warned that “making policy adjustments that could allow the long-term yields to rise might lead to an increase in real interest rates,” making it more difficult to lift inflation toward the central bank’s 2 percent target, the minutes showed.
Another member noted that since the wording of the decision was somewhat ambiguous and could be interpreted in many ways, the yields could rise “more than necessary.”
“In that case, the rise could hamper the intended effects” of the bank’s stimulus measures, this person said.
BOJ minutes do not attribute comments to individual speakers.
A different member agreed to the move but added that “there should be careful consideration when mentioning the range of movement as there was a risk that the yield level would take on a life of its own.”
BOJ Gov. Haruhiko Kuroda explained at a news conference following the two-day meeting through July 31 that the move was meant to increase the sustainability of the stimulus, amid criticism that more than five years of aggressive bond buying had soaked up liquidity and was distorting the market.
He said the board’s decision effectively meant that 10-year yields would be allowed to move between minus 0.2 percent and 0.2 percent, double the width of the previous range.
But the minutes showed that another board member had suggested that the range should be even wider — minus 0.25 percent to 0.25 percent.
A few members voiced concern over growing speculation among the public that the BOJ is moving toward normalization of monetary policy despite not yet achieving 2 percent inflation.
This led to the introduction of so-called forward guidance in the form of a pledge to keep interest rates low “for an extended period of time,” to reinforce the central bank’s commitment.