Minutes of the
Monetary Policy Meeting
on February 20 and 21, 2007
(중략)
III. Summary of Discussions on Monetary Policy for the Immediate Future
Based on their assessment of the economic and financial situation, members discussed the monetary policy stance for the immediate future.
The majority of members were of the view that, reviewing the outlook for Japan's economy based on incoming data and information, both on the domestic and overseas economies, a virtuous circle of production, income, and spending remained intact, and that it was becoming more likely that the economy would experience sustainable economic growth with price stability.
They continued that, with the prospects of the economic and price situation improving, the stimulative effect of monetary policy, if the policy interest rate were kept at the current level, could gradually increase, and if expectation took hold, in such a situation, that interest rates would remain low for a long time regardless of economic activity and prices, there was a possibility that sustained economic growth would be hampered by misallocation of funds and resources through excess financial and economic activities.
One of these members pointed out that the expected real rate of return in the medium to long term on investment in financial and fixed assets would recover as improvement in the economic situation became likely. The member continued that, in order to achieve sustainable economic growth with long-term price stability, real interest rates should be adjusted in line with the recovery in the expected real rate of return, thereby promoting efficient allocation of resources and funds.
On this basis, these members expressed their view on the guideline for money market operations for the intermeeting period ahead that it would be appropriate to raise the uncollateralized overnight call rate target from around 0.25 percent to around 0.5 percent,
with a view to ensuring price stability in the medium to long term and achieving sustainable economic growth.
These members agreed that, if the Bank decided to raise the policy interest rate at this meeting, it should explain clearly that the decision was based on a forward-looking perspective, projecting developments in economic activity and prices for one to two years
ahead: in other words, the Bank had made the decision from a longer-term perspective, taking full account of the possibility that the CPI might become sluggish and its year-on-year rate of change might even become negative in the short run. They also
concurred that the Bank needed to make efforts to ensure full understanding among the public that the adjustment of interest rates at this meeting was not intended to constrain economic growth but to ensure sustainable growth by containing large economic swings.
A few of these members added that it was important that the Bank explain that such forward-looking decisions were based on comprehensive examination of all relevant information, including economic indicators, gathered and accumulated until the day of the
meeting, and were not based solely on developments in economic indicators since the previous month.
On the other hand, one member expressed the view that, from a forward-looking perspective, the Bank should maintain the uncollateralized overnight call rate target at around 0.25 percent because there was significant uncertainty regarding the future pace of increase in prices, given that the relative weakness in wages and private consumption had not been dispelled and that there was a likelihood of a temporary pause in the growth of production in the future although adjustments might be marginal. This member said that it would still not be too late to raise the policy interest rate after explaining the Bank's projections for prices including that for fiscal 2008 through, for example, the upcoming Outlook Report.
The members who advocated raising the uncollateralized overnight call rate target expressed the opinion that it would be appropriate to raise the basic loan rate, the loan rate for the complementary lending facility, from 0.4 percent to 0.75 percent if the Bank raised the uncollateralized overnight call rate target. Some of these members were of the view that, given that the proper functioning of the money market had been gradually restored since the Bank had brought the zero interest rate environment to an end in July 2006, the Bank's stable control of the overnight call rate would not be hindered even if the spread between the overnight call rate target and the basic loan rate expanded a little wider from
the current 0.15 percentage point to 0.25 percentage point.
With respect to the outright purchases of long-term interest-bearing Japanese government bonds, members agreed that it would be appropriate for the Bank to continue to purchase them at the current amount and frequency for some time, with due regard for the future condition of its balance sheet.
Members concurred that their basic thinking remained unchanged on the future course of monetary policy: the Bank would adjust the level of interest rates gradually in the light of developments in economic activity and prices, while maintaining the accommodative financial conditions ensuing from very low interest rates for some time.
A few members said that the Bank should explain repeatedly that adjustment of interest rates would be implemented gradually in the light of developments in economic activity and prices, and would not be based on a predetermined time schedule.
Many members commented on the Bank's communication with market participants that the Bank should communicate, not the specific timing of a policy change, but its assessment of economic activity and prices and its basic thinking concerning the conduct of monetary policy. They emphasized the importance of the process of two-way communication on this basis between the Bank and market participants in which market participants would form their views regarding interest rates by comparing information provided by the Bank with their assessment of economic activity and prices, and in turn the Bank would obtain information about market participants' views on economic activity and prices from interest rates formed in financial markets.
One member said that the Bank should aim to provide concise explanations when communicating to market participants.
Monetary Policy Meeting
on February 20 and 21, 2007
(중략)
III. Summary of Discussions on Monetary Policy for the Immediate Future
Based on their assessment of the economic and financial situation, members discussed the monetary policy stance for the immediate future.
The majority of members were of the view that, reviewing the outlook for Japan's economy based on incoming data and information, both on the domestic and overseas economies, a virtuous circle of production, income, and spending remained intact, and that it was becoming more likely that the economy would experience sustainable economic growth with price stability.
They continued that, with the prospects of the economic and price situation improving, the stimulative effect of monetary policy, if the policy interest rate were kept at the current level, could gradually increase, and if expectation took hold, in such a situation, that interest rates would remain low for a long time regardless of economic activity and prices, there was a possibility that sustained economic growth would be hampered by misallocation of funds and resources through excess financial and economic activities.
One of these members pointed out that the expected real rate of return in the medium to long term on investment in financial and fixed assets would recover as improvement in the economic situation became likely. The member continued that, in order to achieve sustainable economic growth with long-term price stability, real interest rates should be adjusted in line with the recovery in the expected real rate of return, thereby promoting efficient allocation of resources and funds.
On this basis, these members expressed their view on the guideline for money market operations for the intermeeting period ahead that it would be appropriate to raise the uncollateralized overnight call rate target from around 0.25 percent to around 0.5 percent,
with a view to ensuring price stability in the medium to long term and achieving sustainable economic growth.
These members agreed that, if the Bank decided to raise the policy interest rate at this meeting, it should explain clearly that the decision was based on a forward-looking perspective, projecting developments in economic activity and prices for one to two years
ahead: in other words, the Bank had made the decision from a longer-term perspective, taking full account of the possibility that the CPI might become sluggish and its year-on-year rate of change might even become negative in the short run. They also
concurred that the Bank needed to make efforts to ensure full understanding among the public that the adjustment of interest rates at this meeting was not intended to constrain economic growth but to ensure sustainable growth by containing large economic swings.
A few of these members added that it was important that the Bank explain that such forward-looking decisions were based on comprehensive examination of all relevant information, including economic indicators, gathered and accumulated until the day of the
meeting, and were not based solely on developments in economic indicators since the previous month.
On the other hand, one member expressed the view that, from a forward-looking perspective, the Bank should maintain the uncollateralized overnight call rate target at around 0.25 percent because there was significant uncertainty regarding the future pace of increase in prices, given that the relative weakness in wages and private consumption had not been dispelled and that there was a likelihood of a temporary pause in the growth of production in the future although adjustments might be marginal. This member said that it would still not be too late to raise the policy interest rate after explaining the Bank's projections for prices including that for fiscal 2008 through, for example, the upcoming Outlook Report.
The members who advocated raising the uncollateralized overnight call rate target expressed the opinion that it would be appropriate to raise the basic loan rate, the loan rate for the complementary lending facility, from 0.4 percent to 0.75 percent if the Bank raised the uncollateralized overnight call rate target. Some of these members were of the view that, given that the proper functioning of the money market had been gradually restored since the Bank had brought the zero interest rate environment to an end in July 2006, the Bank's stable control of the overnight call rate would not be hindered even if the spread between the overnight call rate target and the basic loan rate expanded a little wider from
the current 0.15 percentage point to 0.25 percentage point.
With respect to the outright purchases of long-term interest-bearing Japanese government bonds, members agreed that it would be appropriate for the Bank to continue to purchase them at the current amount and frequency for some time, with due regard for the future condition of its balance sheet.
Members concurred that their basic thinking remained unchanged on the future course of monetary policy: the Bank would adjust the level of interest rates gradually in the light of developments in economic activity and prices, while maintaining the accommodative financial conditions ensuing from very low interest rates for some time.
A few members said that the Bank should explain repeatedly that adjustment of interest rates would be implemented gradually in the light of developments in economic activity and prices, and would not be based on a predetermined time schedule.
Many members commented on the Bank's communication with market participants that the Bank should communicate, not the specific timing of a policy change, but its assessment of economic activity and prices and its basic thinking concerning the conduct of monetary policy. They emphasized the importance of the process of two-way communication on this basis between the Bank and market participants in which market participants would form their views regarding interest rates by comparing information provided by the Bank with their assessment of economic activity and prices, and in turn the Bank would obtain information about market participants' views on economic activity and prices from interest rates formed in financial markets.
One member said that the Bank should aim to provide concise explanations when communicating to market participants.
