Minutes of the Monetary Policy Meeting on February 8 and 9, 2006  : 日本銀行 Bank of Japan
Central bank: boj | Type: minutes | Date: 2006-02-09

Minutes of the Monetary Policy Meeting
on February 8 and 9, 2006
(English translation prepared by the Bank's staff based on the Japanese original)
March 14, 2006
Bank of Japan
A Monetary Policy Meeting of the Bank of Japan Policy Board was held in the Head Office of the Bank of Japan in Tokyo on Wednesday, February 8, 2006, from 2:00 p.m. to 3:37 p.m., and on Thursday, February 9, from 9:00 a.m. to 12:14 p.m.
Policy Board Members Present Mr. T. Fukui, Chairman, Governor of the Bank of Japan
Mr. T. Muto, Deputy Governor of the Bank of Japan
Mr. K. Iwata, Deputy Governor of the Bank of Japan
Ms. M. Suda
Mr. S. Nakahara
Mr. H. Haru
Mr. T. Fukuma
Mr. A. Mizuno
Mr. K. G. Nishimura
Government Representatives Present Mr. K. Akaba, Senior Vice Minister of Finance, Ministry of Finance
Mr. K. Sugimoto, Deputy Vice Minister for Policy Planning and Coordination, Ministry of Finance
Mr. Y. Nakajo, Vice Minister for Policy Coordination, Cabinet Office
Reporting Staff Mr. E. Hirano, Executive Director (Assistant Governor)
Mr. M. Shirakawa, Executive Director
Mr. A. Yamamoto, Executive Director
Mr. H. Yamaguchi, Director-General, Monetary Affairs Department
Mr. S. Uchida, Senior Economist, Monetary Affairs Department
Mr. H. Nakaso, Director-General, Financial Markets Department
Mr. H. Hayakawa, Director-General, Research and Statistics Department
Mr. K. Momma, Deputy Director-General, Research and Statistics Department
Mr. A. Horii, Director-General, International Department
Secretariat of the Monetary Policy Meeting Mr. Y. Nakayama, Director-General, Secretariat of the Policy Board
Mr. T. Kozu, Adviser to the Governor, Secretariat of the Policy Board
Mr. K. Murakami, Director, Secretariat of the Policy Board
Mr. S. Shiratsuka, Senior Economist, Monetary Affairs Department
Mr. T. Kato, Senior Economist, Monetary Affairs Department
The minutes of this meeting were approved by the Policy Board at the Monetary Policy Meeting held on March 8 and 9, 2006 as "a document which contains an outline of the discussion at the meeting" stipulated in Article 20, Paragraph 1 of the Bank of Japan Law of 1997. Those present are referred to by their titles at the time of the meeting.
Mr. K. Akaba was present on February 9.
Mr. K. Sugimoto was present on February 8.
I. Summary of Staff Reports on Economic and Financial Developments
A. Money Market Operations in the Intermeeting Period
The Bank conducted market operations in accordance with the guideline decided at the previous meeting on January 19 and 20, 2006.
The outstanding balance of current accounts at the Bank moved in the 31-35 trillion yen range.
Reports were made based on information available at the time of the meeting.
The guideline was as follows:
The Bank of Japan will conduct money market operations, aiming at the outstanding balance of current accounts held at the Bank at around 30 to 35 trillion yen.
Should there be a risk of financial market instability, such as a surge in liquidity demand, the Bank will provide more liquidity irrespective of the above target. When it is judged that liquidity demand is exceptionally weak considering such factors as responses of financial institutions to the Bank's funds-supplying operations, there may be cases where the balance of current accounts falls short of the target.
B. Recent Developments in Financial Markets
The weighted average of the uncollateralized overnight call rate was at around zero percent. Interest rates on term instruments were generally stable at low levels.
Japanese stock prices rose reflecting announcements of business performance by some firms and increased expectations of economic recovery. The Nikkei 225 Stock Average was recently moving in the range of 16,500-17,000 yen.
Long-term interest rates rose reflecting such factors as a rise in U.S. interest rates and strong Japanese economic indicators. They were moving in the range of 1.55-1.60 percent recently.
The yen depreciated against the U.S. dollar partly because the dollar was purchased by foreign investors in view of generally firm U.S. economic indicators. It was recently being traded in the range of 117-119 yen to the dollar.
C. Overseas Economic and Financial Developments
The U.S. economy continued to expand steadily, at a pace around its potential growth rate, led mainly by household spending and business fixed investment. Although prices had recorded a high increase temporarily due to the elevated energy prices, the inflation rate was increasing moderately in terms of the basic trend.
In the euro area, although the economy remained somewhat sluggish, the momentum for recovery had been gradually increasing as evidenced by the pickup in exports and production partly due to depreciation of the euro.
With regard to East Asian economies, in China both domestic and external demand continued to expand strongly. The NIEs and ASEAN economies continued to expand at a moderate pace on the whole, although negative effects of high energy prices could be seen in some economic activity.
In U.S. and European financial markets, long-term interest rates rose, partly reflecting the release of stronger-than-expected economic indicators. Stock prices in the United States fluctuated somewhat, while those in Europe increased. In financial markets in most of the emerging economies, their currencies and stock prices rose and yield differentials between their sovereign bonds and U.S. Treasuries narrowed.
D. Economic and Financial Developments in Japan
Economic developments
Exports had continued to increase against the background of the expansion of overseas economies. Exports to the United States had continued to increase steadily, posting a sizeable gain in the October-December quarter, led by automobile-related goods. Those to China, which had been lacking in momentum until the middle of 2005, posted a solid increase in the October-December quarter, particularly in IT-related goods and automobile-related goods, after having risen notably in the July-September quarter. Exports were expected to continue rising, against the background of the further expansion of overseas economies, especially in the United States and East Asia.
In the corporate sector, business fixed investment had continued to increase, and was expected to keep increasing, since the expansion in domestic and external demand and the high level of corporate profits were likely to be maintained.
As for the employment and income situation in the household sector, household income had continued rising moderately, reflecting improvements in employment and wages, as various indicators for labor market conditions had been improving. The gradual increase in household income was likely to continue, given that firms had begun to perceive their holdings of labor as insufficient and corporate profits were expected to remain high.
Private consumption had been steady overall, although readings still varied among indicators. The number of new passenger-car registrations bounced back in January led mainly by small passenger cars, after showing weak developments since the second half of 2005. Sales of electrical appliances had continued their steady increase, and sales at department stores had remained firm. Outlays for travel, on the other hand, had been almost flat on average. Indicators for consumer sentiment had been on an improving trend. As for the outlook, private consumption was likely to continue recovering steadily, partly against the background of a gradual increase in household income.
Production had continued to increase since early autumn, although it had repeatedly exhibited fluctuations due to statistical factors until the middle of 2005. Figures for the October-December quarter by industry showed that production of electronic parts and devices posted brisk gains and that of general machinery and transport machinery also stepped up. Production was expected to continue its uptrend, as overseas economies would continue to grow and the foundation for a recovery in domestic demand was solid.
Inventories overall had been more or less in balance with shipments, although they had been relatively high in, for example, some materials industries.
Domestic corporate goods prices had continued to increase, mainly reflecting the rise in international commodity prices and the depreciation of the yen in the second half of 2005. They were expected to continue increasing for the time being, mainly due to the effects of the rise in international commodity prices. The year-on-year rate of change in consumer prices (excluding fresh food, on a nationwide basis) had been slightly positive in November and December, 0.1 percent in both months, after recording 0.0 percent in October. As for the outlook, a positive trend was projected to be established in the year-on-year change in consumer prices, as supply-demand conditions continued improving gradually and the effects from the reduction in telephone charges dissipated.
Financial environment
The environment for corporate finance was becoming more accommodative on the whole. The lending attitude of private banks was becoming more accommodative, and that of financial institutions as perceived by firms had also been improving. The decline in credit demand in the private sector was coming to a halt. Under these circumstances, the rate of increase in the amount outstanding of lending by private banks was accelerating, and the amount outstanding of CP and corporate bonds issued had been above the previous year's level.
The year-on-year growth rate of the monetary base had been at the 1.0-2.0 percent level, and that of the money stock (M2+CDs) had been around 2.0 percent.
II. Summary of Discussions by the Policy Board on Economic and Financial Developments
A. Economic Developments
On the current state of Japan's economy, members agreed that it continued to recover steadily. Many members said that there continued to be a well-balanced economic recovery, particularly in terms of the balance between domestic and external demand and between the corporate and the household sector, and that this was expected to continue.
Members agreed that overseas economies, particularly those of the United States and East Asia, continued to expand, and were likely to keep expanding.
On the U.S. economy, many members expressed the view that it continued to expand steadily, led mainly by household spending and business fixed investment, and was likely to keep expanding at a pace around its potential growth rate. Some members commented on the real GDP growth rate for the October-December quarter which turned out to be relatively low, 1.1 percent on an annualized quarter-on-quarter basis. They noted that this was partly attributable to temporary factors, such as a fall in private consumption, caused by a decrease in sales of motor vehicles as a reaction to their high growth in the July-September quarter, and an increase in imports of energy due to hurricane-related disruptions, as well as to the lower-than-expected increase in inventories. They judged that, given the recent developments in demand and the ongoing improvement in the employment situation, the momentum for economic expansion remained intact. Some members added that careful attention should be paid to developments in housing investment in assessing the pace of U.S. economic expansion.
Some members commented on price developments in the United States that the core consumer price index (CPI), which excluded food and energy prices, had been rising moderately partly against the background of an improvement in supply-demand conditions and an increase in unit labor costs due to a decline in labor productivity. A few members referred to the fact that, given these developments in economic activity and prices, the Federal Open Market Committee (FOMC) raised the federal funds rate target by 25 basis points at the January meeting. They expressed the view that there was a growing perception among market participants that the federal funds rate was approaching close to a neutral level, and therefore the future conduct of monetary policy by the Federal Reserve warranted attention. A different member said that uncertainty about the future conduct of monetary policy was spreading among market participants, in part since there were concerns about inflation and at the same time about a possible deceleration in housing investment.
With regard to East Asian economies, members agreed that both domestic and external demand continued to expand strongly in China, and the NIEs and ASEAN economies continued to expand at a moderate pace on the whole. A few members said that in the euro area the momentum for recovery had been gradually increasing particularly in the corporate sector, as evidenced by the pickup in exports and production due to depreciation of the euro.
Some members commented on risk factors for the global economy that the rise in international commodity prices, particularly crude oil prices, and a possible concomitant heightening of inflation expectations continued to require attention. One member added that the issue of global imbalances continued to warrant careful attention as a medium- to long-term risk.
Regarding Japan's economy, members agreed that exports had continued to increase, reflecting the expansion of overseas economies, and were likely to continue to rise. Some members said that exports to China, which had been lacking in momentum until the middle of 2005, posted a solid increase in the October-December quarter, after having risen notably in the summer, and thus an uptrend in exports to China had become clear. One member noted that the yen had depreciated to its lowest level since 1985 in terms of the real effective exchange rate and this was also expected to support the uptrend in exports.
As for domestic private demand, members concurred that a virtuous cycle was operating where positive developments in the corporate sector spread to the household sector which in turn fed back to the corporate sector through an increase in private consumption. This confirmed that the economic recovery was increasingly becoming self-sustained led by expansion of domestic demand.
With regard to developments in the corporate sector, members agreed that business fixed investment had continued to increase regardless of industry or size of firm and was likely to keep increasing, since the perception among firms of having excess production capacity had dissipated and corporate profits remained high. One member commented that corporate profits had previously increased due mainly to the effects of corporate restructuring while sales had decreased, but in recent years many of the firms whose profits had increased had experienced a rise in sales, suggesting that corporate activity was becoming brisk.
As for the employment and income situation, members agreed that the number of employees and wages had been increasing, and household income had continued to rise moderately, in a situation where labor market conditions had continued to improve and firms had started to perceive their holdings of labor as insufficient, as evidenced by, for example, the ratio of job offers to applicants reaching the 1.00 level for the first time in 13 years. Some members noted that the year-on-year growth rate of winter bonus payments was close to that of summer and winter bonuses in the previous year, and regular payments, driven by the increase in payments to full-time employees, had been increasing gradually. They expressed the view that, if such movements became widespread, positive effects of corporate profits on household income would increase further.
Members expressed the view that private consumption had been steady. They concurred that it was likely to continue to recover steadily since the employment and income situation had continued to improve and indicators for consumer sentiment had been on an improving trend. One member expressed the view that the steady developments in private consumption were due partly to the wealth effect. A different member added that developments in sales of automobiles and factors such as the effects of a future increase in household burden required close monitoring.
Members agreed that production had continued to increase, as demand both at home and abroad had been increasing steadily and was likely to increase further, judging from the production forecast index, anecdotal information, and other factors. Many members added that recovery in production, which had been lagging behind the recovery in the demand side partly due to the effects of temporary factors, had become clear, particularly in the production of electronic parts and devices and transport machinery. Some members noted that shipments were also showing relatively high growth, and expressed the view that inventories in the industrial sector as a whole were more or less in balance with shipments, as could be seen in the inventory cycle where electronic parts and devices were in a recovery phase, although materials industries were in a moderate adjustment phase.
Some members said that future developments in production in IT-related sectors required close monitoring, pointing to facts such as that in the United States the pace of increase in hours worked in IT-related sectors had been slowing and the book-to-bill ratio, the ratio of orders to shipments, of semiconductor manufacturing equipment in North America remained below one.
With regard to prices, many members commented on international commodity prices that crude oil prices remained at high levels due mainly to geopolitical risks, and prices of other commodities such as nonferrous metals continued to increase. One member added that there was a possibility that the surge in international commodity prices was due in part to excessive liquidity in the global economy. Members agreed that domestic corporate goods prices had continued to increase, mainly reflecting the rise in international commodity prices and the depreciation of the yen in the second half of 2005, and said that they were expected to continue increasing.
Many members commented that the year-on-year rate of change in consumer prices (excluding fresh food, on a nationwide basis) had been slightly positive in November and December, 0.1 percent in both months, after recording 0.0 percent in October. Some members pointed out that the year-on-year rate of change in consumer prices, excluding special factors such as petroleum product prices and electricity and telephone charges, was around zero percent at present. A different member said that some firms were starting to pass through part of their costs in final goods prices, and this might become more widespread if consumers' expected inflation rate increased.
Members commented on price developments for the January-March quarter of 2006 that since the year-on-year rate of change in consumer prices (excluding fresh food) in the Tokyo metropolitan area was 0.1 percent in January, consumer prices were likely to record a clear year-on-year increase on a nationwide basis in January. They agreed that this would continue for the rest of the quarter as supply-demand conditions continued improving gradually and the effects from the reduction in telephone charges dissipated. Some members commented on price developments thereafter that although the year-on-year rate of change in consumer prices might fluctuate in the short term due to temporary factors, a positive trend was likely to be established. This was because the supply-demand balance was likely to improve and downward pressures from unit labor costs were likely to decrease in a situation where wages were increasing. Some members noted that services prices, which had been declining, had started to increase gradually, and added that whether firms would start to pass the wage increases to prices when they repriced at the beginning of the new fiscal year in April 2006 warranted attention. A different member projected that electricity charges from April were unlikely to be below the previous year's level due partly to the rise in charges calculated based on the fuel cost adjustment system.
With regard to developments in the real estate market, one member said that prices of both land and condominiums were rising in some areas although the rise was not widespread, and future developments required close monitoring.
B. Financial Developments
On the financial front, members concurred that the financial environment remained extremely accommodative.
Some members pointed out that lending by private banks continued to be on an improving trend with the accelerating pace of increase. One of these members said that firms' fund-raising environment was improving in terms of both quantity and interest rates, given that banks' lending attitude was becoming more active and lending rates were on a declining trend. In this situation, funds raised by the private sector had almost recovered to the previous year's level, and the decline in credit demand in the private sector was coming to a halt.
Some members noted that stock prices had returned to the 16,000-17,000 yen level, after a temporary decline due to the effects of alleged violation of the Securities and Exchange Law by certain firms. They expressed the view that this confirmed that market participants considered that the fundamental environment surrounding stock prices, namely, high corporate profits and steady economic recovery, remained unchanged.
A few members noted that long-term interest rates were higher than at the previous meeting due partly to the rise in U.S. long-term interest rates, in addition to the recovery of Japan's economy. One member added that volatility was increasing for interest rates with relatively short-term maturities.
III. Summary of Discussions on Monetary Policy for the Immediate Future
On the monetary policy stance for the immediate future, members agreed that it was appropriate to maintain the current framework of the quantitative easing policy in accordance with the Bank's commitment.
Members agreed that, although the year-on-year rate of change in the CPI (excluding fresh food, on a nationwide basis) had been at or above zero percent for three consecutive months since October 2005, it was still only slightly positive, and thus it could not be judged that it was registering zero percent or higher on a sustainable basis. It was therefore necessary to continue to monitor carefully developments in the CPI and in the underlying economy. Members confirmed again that the Bank would decide a change of the policy framework appropriately according to the commitment based on the CPI announced in March 2001. Some members said that the Bank's judgment whether the year-on-year change in the CPI was registering zero percent or higher on a sustainable basis would become even more important as the CPI was expected to show a clear year-on-year increase in forthcoming releases.
The majority of members said that it was appropriate to maintain the current guideline for money market operations, including the proviso. Against this view, a few members expressed the view that it would be appropriate to lower the target range for the outstanding balance of current accounts at the Bank at this point mainly for the following reasons. First, continuing the unprecedented monetary easing in a situation where the economic recovery was becoming clearer could cause distortion in the allocation of resources and as a result negatively affect economic activity. And second, the Bank should clearly indicate at this stage its intention to gradually lower the outstanding balance of current accounts at the Bank after the termination of the quantitative easing policy.
Members discussed their thinking on the conduct of monetary policy after the change of the policy framework.
Members confirmed again their basic thinking on the conduct of monetary policy that, if it was judged that upward pressure on prices continued to be contained and the economy followed a sustainable and balanced growth path, the extremely accommodative financial environment was likely to be maintained. One member commented that it was important to promote greater understanding among market participants that there would be continuity in monetary policy given that the accommodative financial environment would continue even after termination of the quantitative easing policy.
Many members said that the Bank should continue to deliberate how it could secure transparency in its conduct of monetary policy after the change of the framework.
On this point, one member said that the Bank could indicate a desirable rate of inflation and its basic thinking regarding the future conduct of monetary policy. A different member expressed the view that, by indicating a rate of inflation at which it was considered that Japan's economy would not fall into deflation again, the Bank could provide an anchor for economic agents' expectations regarding future developments in economic activity and prices and contribute to stable formation of expectations in financial markets. A few members said that inflation targeting was basically aimed at achieving the announced inflation target in the medium to long term and it was considered to be a framework that allowed flexible conduct of monetary policy in accordance with, for example, developments in the economy, but it was doubtful whether these points were fully understood in Japan. One member said that, based on past experience, it was important to be aware that the public's expected rate of inflation was low and they had a strong aversion to inflation. A few other members commented that if the Bank examined the possibility of indicating a desirable rate of inflation in terms of a numerical figure, consideration should be given to such points as whether timeliness and flexibility would be maintained in its conduct of monetary policy.
Based on the above discussions, members agreed that the Bank needed to examine specific ways of securing monetary policy transparency, referring to practices of other central banks. They also concurred that first and most importantly the Bank should explain clearly its assessment of the economic and financial situation and its thinking on the conduct of monetary policy. Second, a forward-looking approach should be taken. And third, an appropriate balance should be kept between transparency and flexibility of the conduct of monetary policy.
IV. Remarks by Government Representatives
The representative from the Ministry of Finance made the following remarks.
(1) Japan's economy was showing progress toward overcoming deflation as evidenced by the year-on-year rate of change in the CPI (excluding fresh food, on a nationwide basis) for December released on January 27, 2006 which was positive, albeit only marginally, as in November. However, deflation, albeit moderate, persisted, based on a comprehensive review of the underlying trend of prices that included other price indicators, such as the GDP deflator, and of the background of the trend.
(2) Ensuring the sustainability of the economic recovery and overcoming deflation were the most important policy tasks the government should tackle together with the Bank. To ensure the achievement of these policy tasks, the government would like the Bank, in its conduct of monetary policy, to firmly continue efforts to overcome deflation and make a careful judgment based on a comprehensive review of economic activity and prices.
(3) The government would also like the Bank, as a monetary authority, to closely monitor developments in financial markets and overall interest rates, and carefully explain its thinking concerning its monetary policy to market participants and the public in order to prevent financial markets from becoming unstable due to speculation regarding the future conduct of monetary policy.
The representative from the Cabinet Office made the following remarks.
(1) Japan's economy was recovering at a moderate pace. However, deflation persisted and overcoming it continued to be an important policy task the government should tackle together with the Bank.
(2) The government expected that in fiscal 2006 the likelihood of overcoming deflation would increase. In order to judge whether the economy had overcome deflation, not only the CPI but also various other price indicators, such as the GDP deflator, should be monitored. The judgment should be made carefully, based on a comprehensive review of the underlying trend of prices that excluded the effects of the surge in crude oil prices and other special factors, and the background of price formation, such as developments in the output gap. The government also considered that achieving a stable inflation rate that would be compatible with sustainable economic growth led mainly by private demand should be the foundation for the conduct of macroeconomic policy and fiscal management for the medium term.
(3) The government hoped that the Bank would implement effective monetary policy that would be consistent with the government's outlook for the economy, taking into account the importance of overcoming deflation. Furthermore, the government would like the Bank to consider presenting a desirable price level and the future path, including the Bank's thinking about the course in reaching that level, in order to promote proper formation of expectations in financial markets, and thereby contribute to the overcoming of deflation and sustainable economic growth with price stability.
Based on the above discussions, the majority of members agreed that it was appropriate to maintain the current guideline, including the proviso, for money market operations with the target for the outstanding balance of current accounts at the Bank at around 30 to 35 trillion yen.
Two members, however, said that they would like to propose that the Bank should lower the target for the outstanding balance of current accounts at the Bank from "around 30 to 35 trillion yen" to "around 27 to 32 trillion yen."
As a result, the following proposal was submitted and put to the vote.
Mr. T. Fukuma and Mr. A. Mizuno proposed the following guideline for money market operations for the intermeeting period ahead:
The Bank of Japan will conduct money market operations, aiming at the outstanding balance of current accounts held at the Bank at around 27 to 32 trillion yen.
Should there be a risk of financial market instability, such as a surge in liquidity demand, the Bank will provide more liquidity irrespective of the above target. When it is judged that liquidity demand is exceptionally weak considering such factors as responses of financial institutions to the Bank's funds-supplying operations, there may be cases where the balance of current accounts falls short of the target.
The proposal was defeated by majority vote.
Votes for the proposal: Mr. T. Fukuma and Mr. A. Mizuno.
Votes against the proposal: Mr. T. Fukui, Mr. T. Muto, Mr. K. Iwata, Ms. M. Suda, Mr. S. Nakahara, Mr. H. Haru, and Mr. K. G. Nishimura.
To reflect the majority view, the chairman formulated the following proposal.
The Chairman's Policy Proposal on the Guideline for Market Operations:
The guideline for money market operations for the intermeeting period ahead will be as follows, and will be made public by the attached statement (see
Attachment
The Bank of Japan will conduct money market operations, aiming at the outstanding balance of current accounts held at the Bank at around 30 to 35 trillion yen.
Should there be a risk of financial market instability, such as a surge in liquidity demand, the Bank will provide more liquidity irrespective of the above target. When it is judged that liquidity demand is exceptionally weak considering such factors as responses of financial institutions to the Bank's funds-supplying operations, there may be cases where the balance of current accounts falls short of the target.
Votes for the proposal: Mr. T. Fukui, Mr. T. Muto, Mr. K. Iwata, Ms. M. Suda, Mr. S. Nakahara, Mr. H. Haru, and Mr. K. G. Nishimura.
Votes against the proposal: Mr. T. Fukuma and Mr. A. Mizuno.
Mr. T. Fukuma dissented from the above proposal, arguing that the Bank should lower the target range for the outstanding balance of current accounts at the Bank gradually in a step-by-step manner, while examining economic and financial developments and financial market conditions, as long as the maintenance of the current framework of the quantitative easing policy would not be hindered, for the following four reasons. First, the Bank should encourage formation of interest rates based on the market mechanism to restore the proper functioning of the market. Second, the Bank should shorten maturities of funds-supplying operations to enhance the timeliness and flexibility of its conduct of monetary policy. Third, it would take a considerable time for the effects of monetary policy to materialize in the economy. And fourth, it was possible to support sustainable economic recovery with price stability by maintaining the zero interest rate environment based on the Bank's commitment in terms of policy duration.
Mr. A. Mizuno dissented from the proposal for the following reasons. First, to ensure financial market stability in the period around the termination of the quantitative easing policy, it would be appropriate to start lowering the outstanding balance in line with developments in the market, rather than lowering it intensively over a short period of time. Second, to minimize the possible shocks from the termination of the policy, the Bank should create an environment where it could communicate with market participants via interest rates. Third, lowering the target range could be expected to indicate that the Bank was taking into consideration the risk of asset inflation. And fourth, by lowering the target range by a relatively small amount, the Bank could indicate clearly its stance that it would gradually lower the target range after the termination of the quantitative easing policy.
VI. Discussion on the Bank's View of Recent Economic and Financial Developments
Members discussed "The Bank's View" in the
Monthly Report of Recent Economic and Financial Developments
(consisting of "The Bank's View" and "The Background"), and put it to the vote.
The Policy Board decided, by unanimous vote, the text of "The Bank's View." It was confirmed that "The Bank's View" would be published on February 9, 2006 and the whole report on February 10, 2006.
The English version of the whole report was published on February 13, 2006.
Attachment
February 9, 2006
Bank of Japan
At the Monetary Policy Meeting held today, the Bank of Japan decided, by 7-2 majority vote, to set the following guideline for money market operations for the intermeeting period:
The Bank of Japan will conduct money market operations, aiming at the outstanding balance of current accounts held at the Bank at around 30 to 35 trillion yen.
Should there be a risk of financial market instability, such as a surge in liquidity demand, the Bank will provide more liquidity irrespective of the above target. When it is judged that liquidity demand is exceptionally weak considering such factors as responses of financial institutions to the Bank's funds-supplying operations, there may be cases where the balance of current accounts falls short of the target.