Bank of Japan board member Ryuzo Miyao said the central bank needed to boost asset-purchase program by 10 trillion yen ($130 billion) amid an increase in downside risks for the economy, a record of last month’s board meeting showed.
Miyao, 47, proposed that the bank expand its asset-purchase fund to buy more government bonds, according to minutes of the Oct. 27 gathering released today in Tokyo. The board decided to increase the program by half that amount, bringing its total size to 20 trillion yen.
Europe’s sovereign debt crisis is the “largest risk” to Japan’s export-driven growth and some BOJ board members have become more cautious about the economy’s outlook since last month, Governor Masaaki Shirakawa said last week. BOJ policy makers may be already weighing the need for additional stimulus, said analyst Naomi Hasegawa.
“Their cautiousness about the Japanese economy has intensified a lot since the October meeting, when they eased policy,” said Hasegawa, a senior bond strategist at Mitsubishi UFJ Morgan Stanley in Tokyo.
The BOJ last week cut its monthly economic assessment for the first time since April, citing a global slowdown, the yen’s appreciation and the effect of Thailand’s flooding on supply chains and exports. It held the overnight lending rate between zero and 0.1 percent and maintained the size of credit and asset purchase programs.
The fund buys assets including government bonds, corporate debt and exchange-traded funds. A few members said that purchases of bonds with maturities of up to two years are effective in stabilizing the foreign-exchange market. Authorities intervened by selling the yen in currency markets on Oct. 31 after it rose to a post-World War II high of 75.35 against the dollar.
Members agreed that lowering borrowing costs of up to around three years would be effective because most companies tend to borrow in that duration, according to the minutes.
Central bank staff members said there wouldn’t be any major constraints in buying more treasury bills and Japanese government bonds with maturities of up to two years, according to the report. They also said there may be more limitations in purchasing corporate debt and Japanese real-estate investment trusts.
The BOJ said “due attention” needed to be paid in making additional purchases of exchange-traded funds because of the “high risk” of price volatility given that price declines could hurt the central bank’s balance sheet, the report showed.