Members of the Bank of Japan's Monetary Policy Board felt that the Japanese economy is picking up as domestic demand remains firm, minutes from the bank's meeting on June 14 and 15 revealed on Wednesday.
They also agreed that the Japanese economy continues to face the challenge of overcoming deflation - but the members also noted that the decline in Japan's long-term bond yields reflects the safeness of JGBs.
However, the members also felt that the bank should remain ready to take action if risks materialize from Europe.
"Overseas economies on the whole still have not emerged from a deceleration phase, but have shown some, albeit moderate, improvement," the minutes said. "In global financial markets, some nervousness continues to be seen, mainly due to concern about the European debt problem. Particular attention should therefore be given to developments in these markets for the time being."
At the meeting, the policy board unanimously decided to hold the key uncollateralized overnight call rate at around 0 to 0.1 percent. The size of the asset purchase fund and credit facility was also left unchanged at JPY 40 trillion and JPY 30 trillion, respectively.
The central bank upgraded its assessment of the domestic economy, saying it "has started picking up moderately as domestic demand remains firm mainly supported by reconstruction-related demand."
Going forward, the economy will return to a moderate recovery path as overseas economies emerge from the deceleration phase and domestic demand remains firm, it said. Nonetheless, the BoJ sees high degree of uncertainty about the global economy.
"Regarding risks to the economic outlook, there remains a high degree of uncertainty about the global economy, including the prospects for the European debt problem, the momentum toward recovery for the U.S. economy, and the likelihood of emerging and commodity-exporting economies simultaneously achieving price stability and economic growth," the minutes said. "Regarding risks to the price outlook, careful attention should be paid to future developments in international commodity prices and in medium- to long-term inflation expectations."
On the price front, the central bank expects change in consumer prices to remain at around zero percent for the time being. The BoJ faces critical challenge of overcoming deflation, while taking the economy back to a sustainable growth path.
"The Bank has been providing support to strengthen the foundations for economic growth and pursuing powerful monetary easing," the minutes said. "The Bank continues to conduct monetary policy in an appropriate manner. The Bank will also do its utmost to ensure the stability of Japan's financial system, while giving particular attention to developments in global financial markets."
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