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MNI POLICY: BOJ June Minutes: Worry Over Solvency, Growth View

MNI (London)
     TOKYO (MNI) - Some Bank of Japan board members voiced concern over the risk
that a prolonged impact from the coronavirus outbreak will shift issues from
liquidity to solvency at the June 15-16 policy meeting, the minutes released
Monday showed.
     A few members expressed the recognition that, "given that a basic function
of central banks was to provide liquidity, it was important for the BOJ to
cooperate with the government while clarifying their respective roles."
     At the meeting, the bank left monetary policy unchanged, as widely
expected, seeing the recently introduced lending programs to facilitate
financing for smaller firms' working smoothly, with bank lending growing.
     The BOJ left its short-term policy interest rate at -0.1% and the long-term
interest rate target at 'around zero percent', with policymakers agreeing that
they continue to examine the impact of the lending facilities on company
financing.
     --BANKRUPTCIES WORRY
     "Some members noted that, if the effects of COVID-19 were prolonged and led
to an increase in bankruptcies and a rise in credit costs for financial
institutions, the impact would spread to the financial system as a whole and to
the functioning of financial intermediation," the minutes showed.
     "A few members pointed out that the government had been enhancing such
programs as provision of credit guarantees and capital funds including
quasi-capital funds," the minutes noted.
     --HIGH VOLATILITY WORRY
     The board members shared the view that, amid a situation of high
uncertainty regarding domestic and overseas economies, the markets continued to
be nervous, as evidenced, for example, by stock market volatility remaining at a
high level.
     "One member expressed the view that, due to expectations for the future,
prices in financial markets had been high compared with the current severe
situation of the real economy. The member then noted that it was necessary to
closely monitor future developments in the markets to see whether there would be
a correction in asset prices," the minutes continued.
     --GROWTH EXPECTATIONS WORRY
     The minutes also highlighted how many members "expressed the recognition
that economic activity could be significantly constrained again if a second wave
of COVID-19 occurred."
     "Some members pointed to the possibility that growth expectations would
decline and demand would be sluggish for a protracted period if firms and
households continued to take defensive action, due mainly to concern about
recurrence of the spread of COVID-19," the noted added.
     "One member noted that a delay in economic recovery brings about
deterioration in firms' financial conditions and volatility in financial and
capital markets, and in turn, such a delay entails a risk of concern over
financial system stability."
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
[TOPICS: MMJBJ$,M$A$$$,M$J$$$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

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