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BoJ Minutes: Further Easing Measures Discussed

boj 021413

Members of the Bank of Japan's monetary policy board felt that additional easing measures may be necessary and discussed their options, minutes from the board's meeting on February 13 and 14 revealed on Tuesday.

Among those options were lowering interest rates on excess reserves, as well as more risk assets, the minutes showed.

The bank refrained from pulling the trigger on any of these measures, however, citing an improvement in the Japanese economy.

"Japan's economy appears to stop weakening," the minutes said. "Exports continue to decrease, but the pace of decrease has been moderating, reflecting the aforementioned developments in overseas economies. Business fixed investment has shown some weakness on the whole, although resilience has been observed in non manufacturing. In contrast, public investment has continued to increase, and housing investment has generally been picking up."

At the meeting, the central bank kept the benchmark uncollateralized overnight call rate unchanged at 0 to 0.1 percent while the size of the asset purchase program was retained at JPY 76 trillion.

The policy board also rejected a proposal to stick to the zero interest rate policy until the 2 percent price stability target is in sight. The proposal was put forward by board member Ryuzo Miyao, but was defeated by a majority vote.

"The bank recognizes that the inflation rate consistent with price stability on a sustainable basis will rise as efforts by a wide range of entities toward strengthening competitiveness and growth potential of Japan's economy make progress," the minutes said. "Based on this recognition, the Bank has set the price stability target at 2 percent in terms of the year-on-year rate of change in the CPI. Under the price stability target specified above, the Bank will pursue monetary easing and aim to achieve this target at the earliest possible time."

The bank sees the year-on-year rate of change in the CPI to turn negative for the time being due to the reversal of the previous year's movements in energy-related and durable consumer goods.

The bank maintained its assessment that "a high degree of uncertainty" remained with regard to Japan's economy, including the prospects for the European debt problem and the momentum towards a recovery of the US economy.

"There remains a high degree of uncertainty concerning Japan's economy, including the prospects for the European debt problem, the momentum toward recovery for the U.S. economy, the possibility of emerging and commodity-exporting economies making a smooth transition to the sustainable growth path, and the effects of the recent bilateral relationship between Japan and China," the minutes said.

After expanding stimulus by JPY 10 trillion in December, the BoJ doubled its inflation target to 2 percent last month and also announced open-ended asset purchase program, set to start from January 2014.

The BoJ also said that Japan's exports continued to decrease, but the pace of decrease has been moderating, reflecting the positive developments in overseas economies. The central bank expects Japan's economy to level off more or less for the time being, and thereafter, return to a moderate recovery path.

"The bank will pursue aggressive monetary easing, aiming to achieve the above-mentioned price stability target, through a virtually zero interest rate policy and purchases of financial assets, as long as the bank judges it appropriate to continue with each policy measure respectively," the minutes said. "In addition, the Bank will provide support for financial institutions' efforts to strengthen the foundations for economic growth and to increase their lending."

Also on Tuesday:

• An index measuring prices for domestic corporate goods added 0.4 percent on month in February, the Bank of Japan said, coming in at 101.0. That beat forecasts for an increase of 0.3 percent following the downwardly revised 0.2 percent gain in January (originally 0.4 percent).

On a yearly basis, prices eased 0.1 percent - matching forecasts following the downwardly revised 0.3 percent contraction in the previous month (originally -0.2 percent).

Export prices were up 0.4 percent on month and down 0.8 percent on year, while import prices added 0.6 percent on month and dipped 0.8 percent on year.

• An index measuring tertiary industry activity in Japan was down a seasonally adjusted 1.1 percent on month in January, the Ministry of Economy, Trade and Industry said, standing at 99.0. The headline figure was well shy of forecasts for a contraction of 0.2 percent following the 1.4 percent increase in December.

Industries that contributed to the decline included wholesale and retail trade, scientific research, technical services and utilities.

Industries that provided support included communications, learning support and amusement services. Accommodations prices were flat.

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