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BoJ Minutes: Japan Must Battle Deflation


Members of the Bank of Japan's monetary policy board believe it is imperative that the country overcome the deflationary pressures that have now plagued Japan for years, minutes from the board's October 30 meeting revealed on Monday.

The members said that they would continue with powerful monetary easing until the inflation target of 1 percent is at least in sight, if not achieved.

"The bank recognizes that Japan's economy faces the critical challenge of overcoming deflation as early as possible and returning to the sustainable growth path with price stability," the minutes said. "This challenge will be met through the combination of efforts by a wide range of economic agents - such as business firms and financial institutions - to strengthen the economy's growth potential and support from the financial side."

The bank also pushed back its hopes of hitting inflation target. The consumer price index (all items less fresh food) is now forecast to fall 0.1 percent in fiscal 2012 compared to the prior estimate of 0.2 percent rise.

For fiscal 2013, consumer prices are projected to increase 0.4 percent compared to July's 0.7 percent growth estimate. In fiscal 2014, the economy is projected to expand 0.6 percent and inflation is seen at 2.8 percent.

The bank trimmed real growth outlook for fiscal 2013 to 1.6 percent from 1.7 percent and this year's estimate sharply down to 1.5 percent from 2.2 percent.

The members added that there also remains a high degree of uncertainty for the Japanese economy, even as many overseas economies - particularly in Europe - are moving deeper into deceleration.

"In global financial markets, while investors' risk aversion on the back of the European debt problem has abated somewhat, particular attention should be given to developments in these markets," the minutes said. "Under such circumstances, exports and industrial production have decreased, starting to affect domestic demand which has remained firm thus far. As such, Japan's economy has been weakening somewhat."

At the meeting, the board decided to retain the benchmark overnight uncollateralized call rate at 0-0.1 percent.

It also expanded its asset purchase program for the second straight month to prevent the economy from sliding into recession, amid risks of persistent deflation. The board lifted the size of asset purchase program to about JPY 91 trillion from JPY 80 trillion. The bank intends to complete the increased purchases by the end of 2013.

An amount of JPY 10 trillion will be utilized to buy government bonds and treasury discount bills and the remaining JPY 1 trillion for commercial papers, corporate bonds, exchange-traded funds and real estate investment trusts.

The asset purchase target now stands at JPY 66 trillion, up from JPY 55 trillion, and the credit facility remains unchanged at JPY 25 trillion. The central bank last expanded the stimulus in September by adding JPY 10 trillion to overall asset purchase program.

"The Bank of Japan judged it appropriate to undertake further aggressive monetary easing policies in order to prevent Japan's economy from deviating from the path of returning to a sustainable growth path with price stability," the minutes said.

by RTTNews Staff Writer

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