BOJ Policymaker Concerned about Higher Long-Term Rates

September 25, 2018

Tokyo- A Bank of Japan policymaker expressed concern over a move by the central bank to allow a rise in long-term interest rates at a policy meeting in July, minutes of the meeting showed on Tuesday.

The member of the BOJ's Policy Board said that accepting greater fluctuations of long-term government bond yields "might lead to an increase in real interest rates and thereby contribute to sluggish inflation," according to the minutes of the board's July 30-31 meeting.

Another board member said, "Allowing the long-term yields to move in a more flexible manner was inappropriate as market participants might misunderstand this as a measure intended to raise the interest rates," according to the minutes.

At the meeting, the BOJ decided by a majority vote to tolerate rises in long-term interest rates to some extent as part of "measures to enhance the sustainability of the current monetary easing," the minutes said.

One board member expressed the view that the measures are designed to "prepare for continuing monetary easing much longer" by enhancing its sustainability and flexibility, the minutes said.

The minutes quoted one board member as saying that "it was questionable whether the measures...would be taken as ones to enhance monetary easing on the whole."

A board member took a negative stance on the introduction of forward guidance to clarify whether the BOJ will maintain the current low interest rates for a certain period.

"In an environment where the projected rates of increase in the CPI (consumer price index) turned out to be lower compared with the previous projections, it was clear that interest rates would be maintained at low levels for a long term," the member was quoted as saying.

"Therefore there might be no significance in purposely introducing forward guidance," the member said.

In response, several board members "expressed the recognition that...speculation among market participants that the Bank would shift toward the so-called exit from monetary easing had in fact tended to grow," the minutes showed.

The members said that forward guidance "would likely have an effect in terms of a response to such a view," according to the minutes. Jiji Press