TOKYO, June 16 - Bank of Japan Policy Board members opted to take the most conventional path when they eased monetary policy on April 30, minutes of the meeting showed on Monday. The board unanimously decided at the meeting to expand the central bank's so-called "quantitative easing" policy by raising its target for excess liquidity in the money market. But the minutes showed that many board members ruled out boosting the BOJ's outright purchases of Japanese government bonds (JGBs) and that many were opposed to the even more radical step of setting an inflation target or even loosely-defined reference rates for prices.
"With regards to raising the current account deposit target, many members said there was no need to increase the purchases of long-term JGBs as a way of securing steady liquidity provision, given the level of bids in recent money market tenders," the minutes said. Under its quantitative easing policy, the BOJ monitors the amount of money that overflows from the money market into current account deposits that banks park at the central bank. Its target for those deposits was raised by five trillion yen ($42.61 billion) to 22-27 trillion yen on April 30. On most previous occasions when the target was raised, the BOJ also increased the amount of JGBs it buys, but many BOJ policymakers have recently expressed concern about overheating in the JGB market, where yields have been plumbing record lows.
PRICE TARGET DEBATE
The minutes also showed that the board discussed how the BOJ could make its policy more transparent to the public. "One member said the Bank of Japan, in the face of a persistent decline in prices, has not given a convincing answer to people's simple questions about why it is not easing more or whether there are other policy options," the minutes said. Some members thought it would be useful to define price stability by setting a loose "reference rate", saying it could be the anchor for people's inflation expectations and reduce the time and cost needed to arrest the deflation that is strangling the world's second-largest economy.
One member suggested that a dynamic approach to target-setting was possible by breaking down the path toward price stability into several stages and setting different policy targets and steps for each of those phases. However, the idea promptly met opposition. One member said it was not appropriate to pre-determine what a desirable price level or inflation rate was. He said how high an inflation rate could be tolerated would depend on the momentum of the economy and prices, as well as conditions in asset markets and the financial system. Several other members also said setting a target, be it strictly defined or loose, without the means to achieve it would not be meaningful and could even make the policy process less transparent.//