BoJ Minutes: Economy Beginning To Recover

BOJ 220513

The members of the Bank of Japan's monetary policy board said that the Japanese economy had finally started to move to the upside, minutes from the board's meeting on May 21 and 22 revealed on Friday.

On the matter of ending the deflation that has plagued Japan for more than 15 years, some of the board members admitted that it could be difficult to attain the bank's new CPI target of 2 percent.

"Japan's economy has started picking up," the minutes said. "Exports have stopped decreasing as overseas economies have been moving out of the deceleration phase that had continued since last year and are gradually heading toward a pick-up. Business fixed investment continues to show resilience in non-manufacturing and appears to have stopped weakening on the whole. Public investment has continued to increase, and housing investment has generally been picking up."

At the meeting, the BoJ kept the nation's benchmark interest unchanged at 0 to 0.10 percent. It also agreed to conduct money market operations so that the monetary base will increase at an annual pace of about JPY 60 to 70 trillion.

The bank said it would continue to purchase Japanese government bonds so that the amount outstanding will increase at an annual pace of about JPY 50 trillion as planned. The purchases of JGBs are expected to put downward pressure on interest rates across the yield curve.

One member said that the bank should limit its easing measure to two years in order to avoid financial imbalances that may result from the stimulus.

The members cautioned, however, that there remains considerable uncertainty and downside risk to the economy - particularly from abroad.

"Regarding risks, there remains a high degree of uncertainty concerning Japan's economy, including the prospects for the European debt problem and the growth momentum of the U.S. economy as well as the emerging and commodity-exporting economies," the minutes said.

The policy board also upgraded its assessment of the economy, saying that the economy has started to pick up, while exports have stopped decreasing with overseas economies moving away from deceleration phase.

With regard to the outlook, the bank said the Japanese economy may return to a moderate recovery path amid resilient domestic demand and a gradual improvement of growth in overseas economies. The BoJ expects the year-over-year rate of change in the CPI to register smaller declines for the time being, and gradually turn positive thereafter.

"Such conduct of monetary policy will support the positive movements in economic activity and financial markets, contribute to a rise in inflation expectations, and lead Japan's economy to overcome deflation that has lasted for nearly 15 years," the minutes said.

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