BOJ fiercely divided over rate cuts amid 2008 financial crisis: minutes

January 29, 2019

Tokyo--The Bank of Japan was fiercely divided over interest rate cuts at policy meetings amid the 2008 financial crisis, according to detailed minutes of the meetings, released on Tuesday. 

The minutes show that then BOJ Governor Masaaki Shirakawa was keen to keep the central bank's policy interest rate above zero, even if close to the threshold, as the BOJ lowered the rate by 0.2 percentage point twice in October-December 2008, sending it to 0.1 pct from 0.5 pct.

The first of the two 0.2-point decreases came when the BOJ Policy Board met on Oct. 31, following the yen's sharp rise and a plunge in Japanese shares after the BOJ skipped joining a concerted move by six U.S., Canadian and European central banks to reduce interest rates on Oct. 8.

At the Oct. 31 meeting, three board members pushed for a 0.25-point cut, as expected by market participants, and a different member opposed any rate cut, while the BOJ leadership aimed for a 0.2-point reduction to reserve room for a further cut.

Then Deputy Governor Hirohide Yamaguchi said that there was no single correct answer to the question whether to lower the policy rate by 0.2 point or 0.25 point, but that a 0.2-point reduction seemed preferable, according to the minutes.

The 0.2-point rate cut proposed by Shirakawa drew a vote of four to four among the eight other board members. It was then adopted under the governor's authority. This was the first tie vote under the current BOJ law.

The second 0.2-point cut was approved at the Dec. 19 policy meeting, on the heels of the U.S. Federal Reserve's decision to introduce a zero interest rate policy.

Among the BOJ policymakers at that meeting, Yamaguchi voiced hopes to put off a rate cut to leave room for future action, but Hidetoshi Kamezaki warned that a deferred decision could be too late. Atsushi Mizuno claimed that it was better to take the risk of doing too much than that of hesitating to take action.

The detailed minutes released by the BOJ on Tuesday cover seven regular policy meetings and four emergency meetings in the second half of 2008.

The central bank discloses detailed minutes 10 years after each policy meeting. Jiji Press