TOKYO – Bank of Japan (BOJ) policymakers have discussed the need to be vigilant with the increased cost of prolonged monetary easing by adopting a pledge in April to hold ultra-low interest rates for at least a year, minutes of the review of the rate showed.
The growing awareness of the risks of its policy underscores the challenge the BoJ would face if it were to accelerate an already massive stimulus program to combat the next recession.
At the April meeting, the BoJ maintained stable monetary policy, but clarified its future orientation – or its commitment to the future trajectory of monetary policy – to say it will keep the current low rates "at least until the spring of 2020."
The decision was driven by rising global economic uncertainties and delays designed to meet BoJ's elusive 2 percent inflation target, the report said on Tuesday.
"The BoJ should be more vigilant than before to the side effects of its policy on financial institutions and markets as it keeps the current policy ultra-easy," one member told the April meeting.
The same member also underscored the importance of maintaining a mix of fiscal and monetary policies to help boost the economy, according to the minutes.
In deliberations on the outlook for monetary policy, one member went further and said further declines in interest rates could do more harm than good to the economy, according to the minutes.
"It was becoming increasingly necessary to carefully balance the effects and side effects of our policy," said the member.
"There was a possibility that a further decline in interest rates would result in a greater risk of inducing side effects on the economy rather than positive effects," especially because of the low crisis rates of financial institutions, the member said.
Years of heavy money printing failed to raise inflation to the BoJ's target and left little ammunition to fight the next recession.
Prolonged easing has also accentuated regional banks, which are already facing declining profits due to aging populations and an exodus of borrowers for large cities.
Underscoring the split within the nine-member council on the political outlook, some members saw room and the potential need to expand the stimulus due to weak inflation and rising risks to Japan's economy.
A board member said the BoJ should "flexibly and decisively" expand stimulus if the economy loses momentum to reach the bank's 2 percent inflation target, according to the minutes. – Reuters