Bank of Japan policymakers urged the government to promote fiscal reform measures and indicated that the stimulus measures of the central bank was having intended effects, the minutes of the November 18-19 rate-setting session showed Thursday.
On November 19, the BoJ Board maintained its massive monetary stimulus a day after Prime Minister Shinzo Abe called for an early election and put off a proposed sales tax hike. Policymakers voted 8-1 to maintain the annual pace of increase in the monetary base at about JPY 80 trillion as they waited to see the effect of surprise expansion decision taken late October.
“Members reaffirmed that (1) it was extremely important to ensure the credibility of fiscal management; and (2) it was for this reason that they expected the government to steadily promote measures aimed at establishing a sustainable fiscal structure, in line with the Medium-Term Fiscal Plan,” the minutes said.
Policymakers noted that the strengthening of consumer sentiment had appeared to pause recently, even as private consumption was expected to remain resilient given the improvement in employment and income situation.
While consumer price inflation was likely to remain around the current level in the near term, inflation expectations appeared to be rising on the whole from a somewhat longer-term perspective, the minutes said.
In October, the Board voted 5-4 to expand the monetary base from JPY 60-70 trillion.
Some members who opposed the expansion of the qualitative and quantitative easing, or QQE, of the central bank on October 31, said they were not proposing any change in November as “an immediate return to former guidelines could impair the credibility of the Bank’s policy conduct.”
“One of these members expressed the opinion that the Bank should endeavor to minimize the risk associated with the additional monetary easing through effective means such as conducting operations flexibly in accordance with market conditions while communicating with market participants appropriately,” the minutes said.
“One member noted that the decline in long-term interest rates due to the Bank’s massive purchases of JGBs entailed a risk that the mechanism of maintaining fiscal discipline through interest rates might be impaired. This member then expressed the view that such risk should be given more careful attention.”
On December 19, the BoJ decided to leave its monetary stimulus unchanged in order to assess the impact of its past massive easing. The unchanged stance came despite falling oil prices posing a threat to the central bank’s 2 percent inflation target.
The Japanese economy slipped into recession in the third quarter with GDP declining an annualized 1.9 percent. After the election victory, Prime Minister Abe said economic policies will retain priority.
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