Bank of Japan board members said they need to counter the mistaken perception that central bank asset purchases will automatically increase, the minutes of a meeting last month show.
“Members made note of some misunderstanding that the bank would continue to increase the size of its program in an automatic manner,” until the BOJ’s 1 percent price goal is met, according to the record of an April 27 meeting released today in Tokyo. “They agreed that the bank needed to fully explain that it made decisions on its monetary policy stance after carefully assessing the economic and price situation.”
The yen’s 5 percent climb against the dollar since mid-March is weighing on the profits of Japanese exporters, suggesting that lawmakers and manufacturers will continue to press for more stimulus. The BOJ needs to avoid being seen financing government deficit spending and has highlighted limits to what monetary policy alone can achieve in fueling growth and ending deflation.
“The BOJ is emphasizing they will act according to the price outlook, which will be affected by developments in currencies,” said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo. “Whether it wants to or not, the BOJ won’t have a choice but to increase asset purchases if the yen strengthens significantly.”
The yen traded at 79.35 per dollar as of 2:42 p.m. in Tokyo. The central bank has increased its asset-purchase fund twice this year, with the first move in February helping to weaken the yen against the dollar. Renewed concerns over Europe’s debt crisis are now lending support to the currency.
Governor Masaaki Shirakawa and his board added 10 trillion yen ($126 billion) to the purchase program in April.
The government faces the challenge of extending an economic recovery after last year’s earthquake and tsunami without worsening the finances of a nation already bearing the world’s biggest public debt burden.
Fitch Ratings last week cut Japan’s sovereign-debt rating, saying the government’s plans for fiscal consolidation look “leisurely.” A few BOJ members said in April that it’s important the central bank makes it clear that its bond purchases aren’t meant to finance government debt, today’s minutes showed.
Elsewhere, a report yesterday showed that profits fell at China’s industrial companies in April from a year earlier. Thailand reported today that industrial output in April rose for the first time in eight months.
“There’s no doubt the data in China in the past month or six weeks have been on the softer side and that’s probably partly a flow on of weaker demand out of Europe,” Reserve Bank of Australia Governor Glenn Stevens said in response to questions at a forum in Sydney today.
Italian business confidence in May is forecast to fall for the second month, according to the median estimate of 16 economists surveyed by Bloomberg News. There are no economic reports scheduled for today in the U.S., where markets are closed for the Memorial Day holiday.
Like the BOJ, the U.S. central bank has turned to buying securities as its main tool after lowering the benchmark rate to near zero. The Federal Reserve bought $2.3 trillion of bonds in two programs of so-called quantitative easing. While that total exceeds what Japan’s central bank has pledged, the BOJ’s balance sheet as a share of GDP exceeds that of the Fed and ECB, with Bloomberg data showing the BOJ’s commitment at 33 percent of the economy compared with the ECB’s 31 percent and the Fed’s 20 percent.
BOJ staff members at the gathering said increasing holdings of exchange-traded funds, which are bought through the facility, entail “a considerable risk of price volatility,” according to the minutes.
The board refrained from extra easing at a meeting last week while Shirakawa pledged to continue “powerful monetary easing.” The central bank forecasts price growth of 0.7 percent in the year starting April 2013.
The yield on Japan’s benchmark 10-year debt fell one basis point to 0.875 percent. It touched 0.815 percent on May 18, the least since 2003, when the rate slid to a record 0.43 percent.
Japan’s government bonds are set for a sixth monthly gain, a winning streak that beats Treasuries amid investor speculation the nation’s central bank will bolster monetary easing to defeat deflation. Debt maturing in more than a year has returned 0.3 percent in May, according to an index compiled by the European Federation of Financial Analysts Societies and Bloomberg. While Treasuries have returned 1 percent so far this month, they’ve handed losses in March and February, the data show.
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