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BOJ Sep Minutes: Board Debated Effect of Easing Under YCC

     TOKYO (MNI) - Most Bank of Japan board members agreed at their Sep. 20-21
that the current easing stance under the yield curve control framework should
help the bank achieve its 2% inflation target while one member argued that it is
insufficient, the minutes of that policy meeting released Monday show.
     The minutes also show most members were optimistic that a continued
tightening in the labor supply would prompt more firms to raise prices,
supporting the bank's efforts to guide inflation from under 1% now to a stable
2% sometime during fiscal 2019.
     One member, believed to be Goushi Kataoka, "argued that monetary easing
effects gained from the current yield curve were not enough for 2% inflation to
be achieved around fiscal 2019."
     The member argued that in a situation where it was likely that excess
capacity remained in capital stock and the labor market, and considering that a
consumption tax hike was scheduled in October 2019, a further increase in demand
was necessary to sufficiently raise prices.
     "... from the viewpoint of generating such an increase in demand, it was
questionable whether the current yield curve in real terms was sufficiently
accommodative relative to the natural yield curve," he added, according to the
minutes. 
     At least one other BOJ board member disagreed with this position. 
     "In response to this opinion, a different member expressed the view that
the level of the current yield curve in real terms was substantially below that
of the natural yield curve for all maturities, and was sufficiently
accommodative even compared with past monetary easing phases," the minutes said.
     Kataoka, a former economist at Mitsubishi UFJ Research and Consulting
joined the BOJ board on July 24 but participated in his first policy meeting in
September. 
     The board debated at length the effects of current policy and some of the
risks that it posed to the Japanese financial system. 
     Some members noted recent remarks by BOJ Governor Haruhiko Kuroda that the
current framework "incorporated a mechanism in which the effects of
accommodative monetary policy would be further enhanced through a decline in
real interest rates and a rise in the natural rate of interest, with the economy
continuing to expand moderately and the inflation and potential growth rates
rising," according to the minutes. 
     On the other hand, some members cautioned that the BOJ's aggressive easing
since April 2013 could have a negative effect on its goal by lowering profits
margins of lenders and killing the function of financial markets.
     Noting due attention should be paid to the impact of powerful monetary
easing on financial markets and financial institutions, those members "expressed
the recognition that it was necessary to avoid a situation in which the
functioning of financial intermediation was hampered and the timing of achieving
2% was delayed as a result."
     In July, the BOJ pushed back the timeframe for hitting the 2% inflation
target to "around fiscal 2019" from the previous estimate of "around fiscal
2018." It was the sixth delay since the bank began aggressive easing in April
2013.
     At its September and October meetings, the BOJ board decided in an 8-to-1
vote to maintain its current monetary easing stance under the yield curve
control framework it adopted in September last year. Kataoka dissented at both
meetings, although he didn't propose any specific policy action.
     Under the yield curve control framework, the BOJ is seeking to stabilize
the 10-year government bond yield, the benchmark for long-term borrowing costs,
at around zero percent and keep the overnight interest rate at -0.1%.
     MORE
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com
--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com
[TOPICS: MAJDS$,MMJBJ$,M$A$$$,M$J$$$,MT$$$$]

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