BOJ Board Members Battled Over 2000 Rate-Increase `Mistake,' Minutes Show
A file photograph shows, Masaru Hayami, then governor of the Bank of Japan, speaking during a news conference in Tokyo. Photographer: Per Bodner/Bloomberg
Bank of Japan board members battled in the months before ending their zero interest-rate stance in August 2000, a move they revoked seven months later.
“It’s not desirable to prolong the half-dead monetary policy and I hope to normalize it when possible,” then-Governor Masaru Hayami said at a June 28 meeting, according to transcripts of meetings from the first half of 2000 released in Tokyo today. Six months earlier, board member Kazuo Ueda said “we all could lose our jobs if a rate increase fails.”
The central bank was compelled to cut the rate back to zero and begin flooding the economy with cash in March 2001 as the global technology boom collapsed and sent Japan into a recession. The government opposed the rate increase and urged the BOJ to help repair the economy, applying pressure that still influences central bank decisions today, said economist Yoshimasa Maruyama.
“The rate hike of 2000 was obviously a policy mistake, based on an incorrect assessment of the economy,” said Maruyama, a senior economist at Itochu Corp. in Tokyo. “The incident has made it hard for BOJ officials to shrug off political pressure and argue that their judgment is correct.”
The central bank retained the policy for five years until 2006, eventually raising the rate to 0.5 percent by February 2007 before lowering it to the current 0.1 percent in December 2008 during the global financial crisis. Japan still endures deflation today and the bank has promised to keep a “very accommodative” policy to eradicate falling prices.
Governor Hayami said in March 2000 that the U.S. stock rally was a “bubble” because successive rate increases by the Federal Reserve didn’t stop its surge, according to the record. Board member Nobuyuki Nakahara, who with Ueda voted against the August rate increase, told a June 12 meeting that he expected U.S. stocks to plunge and Japan could slip into a recession later in the year, the transcript shows.
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
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