Bank of Japan minutes show member suggested limiting stimulus

Monetary policy messages may be stoking volatility in Japanese government bonds

PUBLISHED : Friday, 14 June, 2013, 2:52pm
UPDATED : Saturday, 15 June, 2013, 3:06am

One member of the Bank of Japan's policy board said limiting quantitative easing to two years could help stabilise the bond market, as the central bank's communications about its monetary policy might in fact be increasing volatility in Japanese government bonds.

The minority opinion was recorded in minutes from the board's May 21-22 meeting released yesterday.

It became public as Japan's cabinet rubber-stamped a set of measures to boost economic growth that so far have failed to impress markets and forced Prime Minister Shinzo Abe to promise to take more steps after next month's upper house elections.

The growth strategy is part of Abe's economic revival plan, which includes hyper-easy monetary policy and big government spending and has been unveiled in batches over the past few months to a lukewarm reception from investors.

The bank's dissenting member, most likely Takahide Kiuchi, also said that because it was difficult to meet Abe's goal of 2 per cent inflation within two years, the central bank should limit quantitative easing to avoid financial imbalances, the minutes showed.

Kiuchi's lone voice of dissent lacks the support of other central bankers for now but could spark concern divisions could grow as the bank's expanded monetary easing has unintentionally caused bond yields to rise.

"One member said that because it is difficult to meet the BOJ's price target, there could be speculation that the BOJ will take more extreme measures, which could cause financial imbalances," the minutes showed.

"In response, several members said that the current policy framework allows the BOJ enough flexibility."

At the May 21-22 meeting, the bank decided to keep its expanded monetary policy on hold, but Kiuchi unsuccessfully proposed loosening the 2 per cent inflation target by making it a medium to long-term goal.

At a subsequent meeting that ended on Tuesday, the bank left policy unchanged but kept the door open to making minor changes to market operations to stem a recent rise in yields.

Abe's proposed pro-growth measures include creation of special economic zones, incentives to boost private investment and participation of women in the workforce as well as deregulation steps in some sectors.

But disappointment over the absence of such steps as corporate tax cuts and liberalisation of the labour market and farming sector accelerated the retreat in Japanese stocks, which dived into bearish territory this week.

In response, the government included a proposal to offer tax breaks to companies investing in new equipment and facilities.

The cabinet approval of a broad array of steps and targets hammered out by government and expert panels comes at a critical point in Abe's push to pull the economy out of deflation and bring back sustained growth.

The economy is picking up pace, having expanded at an annualised 4.1 per cent rate in the first quarter, with help from improved global demand, a weaker yen and improved consumer and business confidence. The Nikkei-225 Index has lost about 20 per cent over the last three weeks. It rose 2 per cent yesterday.


The following are main targets and steps in the growth programme.


- Adopt bold tax breaks to boost corporations’ capital spending

- Focus on boosting domestic private investment over the next three years, and target for private-sector investment of 70 trillion yen annually, the level before the 2008 financial crisis and up about 10 per cent from current levels.

- Set up special economic zones to attract foreign businesses. Implement reforms in regulations and tax systems and take necessary action in the zones to create an international business environment.

- Aim to boost the total value of infrastructure projects that involve private finance initiatives (PFIs) and public-private partnership (PPP) by 3 times to 12 trillion yen ($127.35 billion) over the next 10 years through measures such as selling of rights to operate airports and expressways.

- Promote business start-ups and consider steps to boost investment in them.

- Pledge to minimise investment of government funds in firms to avoid bailouts of “zombie” companies that are failing.



- Targets annual gains of 3 per cent or more in gross national income per capita, which would be an increase of 1.5 million yen ($15,000) over 10 years from around 3.84 million yen last year.



- Double the balance of inward foreign direct investment to 35 trillion yen by 2020.

- Hit a target of 70 per cent of exports covered by free trade deals by 2018, compared with around 19 per cent, by pushing the US-led Trans-Pacific Economic Partnership (TPP) and other trade deals with the European Union, China and South Korea, and aim to create an Asia-Pacific free trade area.

- Triple infrastructure exports to 30 trillion yen by 2020.



- To seek experts’ views on whether public pensions and other public funds should seek higher returns by raising their investment in equities, and aim to reach a conclusion by autumn.



- Triple overseas sales of “Cool Japan” content such as anime in five years.

- Aim to boost the number of foreign visitors to Japan to 10 million a year this year from about 8 million now, and to 30 million in 2030.



- Promote the smooth shift of workers to growth sectors from mature business areas without creating unemployment.

- Review criteria for approval of permanent residency such as to shorten the duration of stay in Japan required to three years from five years to encourage high-skilled foreigners to keep working in the country.



- Double farm, fisheries and marine exports to 1 trillion yen by 2020.

- Reduce rice production cost by an average of 40 per cent in next 10 years.

- Boost exports of Japanese food including farm products, traditional cuisine and sweets to around 1 trillion yen by 2020 from about 450 billion yen.



- Set a goal of reducing the waiting list at day care centres to zero by 2017 to make it easier for women to work and raise children.

- Promote extending periods of childcare leave to last up to three years.

- Increase the employment rate of females aged 25 to 44 to 73 per cent by 2020 from 68 per cent.



- Create a system similar to the National Institutes of Health in the United States to develop cutting-edge medical technologies.

- Submit legislation to revise the pharmaceutical law to shorten examination periods.

- Implement bold regulatory easing to speed up the examination process of medical technologies by allowing certification by third party private institutions, except for risky technologies such as cardiac pacemakers.

- Allow the sale over the Internet of most over-the-counter drugs as part of efforts to mobilise the Internet for growth.



- Boost power-related investment one and a half times to 30 trillion yen over the next decade.

- Speed up environmental assessments of low-cost coal and liquefied natural gas-fired power plants.

- Complete reforms to electricity system by 2020.

- Restart nuclear power reactors after safety clearance from the Nuclear Regulation Authority.