MNI POLICY: BOJ Minutes: Members See Pre-Emptive Move On Risks

     TOKYO (MNI) - A few Bank of Japan board members emphasized the need to take

pre-emptive policy action against the heightened risks facing Japan's economy,

the minutes of the July 29-30 policy-setting meeting released on Wednesday

showed.

     Some members also called for measures to mitigate the side-effects of

further easing on commercial banks and the financial system.

     The minutes also showed, "Many members expressed the recognition that (1)

it was appropriate that the BOJ would not hesitate to take additional easing

measures if there was a greater possibility that the momentum toward achieving

the price stability target would be lost, particularly in a situation where

downside risks to economic activity and prices, mainly regarding overseas

economies, were significant, and (2) it was desirable that the BOJ communicate

to the public in such a way that clarified this policy stance."

     One member said, "It was desirable for the Bank to strengthen monetary

easing by lowering the short-term policy interest rate."

     The BOJ backed away from any pre-emptive easing measures at the July

meeting, leaving policy unchanged, as the economy continues to expand

moderately, underpinned by solid domestic demand, although it admitted to

greater downside risks to both activity and prices.

     "The bank will not hesitate to take additional easing measures if there is

a greater possibility that the momentum toward achieving the price stability

target will be lost," the BOJ said in the accompanying statement as a nod to

those risks.

     BOJ Governor Haruhiko Kuroda admitted on July 30 that he lowered the hurdle

to taking additional easy policy, as Japan's economy now faces greater downside

risks than in April.

     Kuroda told reporters that the bank had given greater clarity to its stance

on taking additional easy policy without hesitation, as downside risks to

economic activity and prices have grown, saying the clarification meant he is

now more positive towards additional easing.

     Other key points from the minutes:

     --One member said, "Since Japan's economy was susceptible to the U.S.-China

trade friction and its inflation rate was far from 2%, it would be necessary for

the BOJ to consider the claims for conducting so-called preventive monetary

easing against downside risks to economic activity and prices."

     --"A few of these members pointed out that it was necessary to examine

various possible easing measures in advance, including their pros and cons."

     --"One member noted that, in a situation where early achievement of the 2%

target could not be envisaged, there was a growing risk that the strengthening

of the monetary easing stance by central banks in the United States and Europe

would exert downward pressure on Japan's prices, mainly through foreign exchange

rates."

     --This member continued that, at this point, it was necessary to make a

preventive and preemptive policy response to downside risks to prices."

     --A different member said, "It was necessary to consider monetary policy

measures more carefully with a view to preventing financial instability while

examining changes in financial institutions' risk-taking stance and the effects

of a decline in interest rates on their profits and lending attitudes."

     --Another member "expressed the view that, in order to continue with the

current monetary easing, further attention should be paid to developments in the

overall financial system."

     --"One member pointed out that, if side effects materialized as a result of

additional easing, it was necessary to consider methods to mitigate them."

     --"A different member noted that, while the BOJ should firmly maintain its

stance of making policy judgments, taking full account of possible side effects

observed in financial markets and the financial system, it also needed to

communicate carefully with the markets so as not to be taken as saying that

there was no room for additional easing."

--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

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