News Column

Japan Policymakers Divided Over 2 Percent Inflation Target

Feb 20, 2013

According to the minutes following last month's policy board meeting released Tuesday by the Bank of Japan, some board members were against the bank introducing an inflation target of 2 percent.

While the majority of the members following the meeting held Jan. 21-22 voted in favor of trying to defeat deflation by way of achieving price stability, the minutes showed that of the nine Policy Board members, Takahide Kiuchi and Takehiro Sato, voted against introducing the price target.

According to the minutes, the central bank opted to double its inflation target to 2 percent in a bid to reverse decades of deflation that has been hampering Japan's anemic economic recovery and agreed to buy assets from next year.

The latter move, analysts said, was in response to mounting pressure from Prime Minister Shinzo Abe's administration for the bank to be more proactive and take bolder steps to counter deflation.

The minutes reflected, however, that board members Takehiro Sato and Takahide Kiuchi felt that the bank's "price stability targets" were in excess of levels thought feasible to achieve economic sustainability in Japan.

"Even if the central bank were to set 2 percent inflation as a target, this alone was highly unlikely to have a substantial influence on inflation expectations," the pair stated in the bank' s official minutes.

Despite the split vote, the majority of the bank's policy makers were in favor of the target, originally announced in January, and were quoted as saying that the bank's strategy in twine with the government's policy moves would lead to higher prices.

Most members were of the opinion that setting the target in line with other advanced economies' own targets would assist in " maintaining a balance in currency values from a long-term perspective."

The bank also announced that open-ended asset purchases would begin from next year, according to the minutes.

The bank said it will begin purchasing financial assets every month without setting any termination date, from January 2014. This open-ended asset purchasing method was passed by a unanimous vote, the minutes said.

The method will involve the bank making monthly asset purchases of 13 trillion yen (146 billion U.S. dollars) -- 2 trillion of which will be allocated for Japanese government bonds and 10 trillion yen in Treasury Bills.

The central bank's total asset purchasing program will thus be increased by 10 trillion yen in 2014 and maintained at this level into the future, the minutes showed.

"With a view to clearly presenting the Bank's stance of pursuing aggressive monetary easing - aiming to achieve the 'price stability target' - it was desirable to introduce a method to continue purchasing a certain amount of financial assets every month without setting any termination date," the minutes said.

The board agreed that BOJ Governor Masaaki Shirakawa would release a joint statement with the government to reflect the significance of the government's duty to "create a more favorable environment to maximize the effects of monetary easing."

"It is important at this time to clearly acknowledge each other 's roles and strengthen their policy coordination, and to indicate this intention to the public in the form of a joint statement," the BOJ chief said, according to the minutes.

Two of the bank's Policy Board members were opposed to a joint statement being issued, however, the minutes reflected.

The Policy Board also voted unanimously to keep the benchmark uncollateralized overnight call rate at around 0 to 0.1 percent.

Source: (c) 2013 Xinhua News Agency - CEIS. Provided by ProQuest LLC. All rights Reserved.

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