Minutes of the Monetary Policy Meeting
on September 18 and 19, 2007
November 5, 2007
Bank of Japan
IV. Summary of Discussions on Monetary Policy for the Immediate Future
Given the economic and financial situation, members concurred that their basic thinking remained unchanged on the monetary policy stance for the immediate future: while confirming that Japan's economy remained likely to follow a path of sustainable growth under price stability in light of the "understanding of medium- to long-term price stability" and assessing relevant risk factors, the Bank would adjust the level of interest rates gradually in accordance with improvements in the economic and price situation.
On the guideline for money market operations for the intermeeting period ahead, one member said that it would be appropriate to raise the uncollateralized overnight call rate target from around 0.5 percent to around 0.75 percent.
Against this view, most members said that it would be appropriate to maintain the current guideline for money market operations that the Bank would encourage the uncollateralized overnight call rate to remain at around 0.5 percent. They expressed the following view: economic indicators suggested that Japan's economy was likely to continue sustainable growth under price stability broadly in line with the projection presented in the April 2007 Outlook for Economic Activity and Prices (hereafter the Outlook Report); however, global financial markets continued to be unstable, and uncertainty regarding global economic developments was heightening due mainly to increasing downside risks to the U.S. economy; and therefore the Bank should continue to examine upcoming economic indicators and other relevant information as well as financial market conditions carefully.
One member said that although Japan's economy was likely to continue sustainable growth under price stability and any policy change should be made in accordance with improvements in the economic and price situation, at present there was time to carefully assess developments in financial markets and the global economy as well as their effects on Japan's economy. A few members said that, as part of that process, it was important to examine how the effects of developments in global financial markets and the U.S. economy would affect the Bank's baseline scenario and confidence regarding the likelihood of the scenario materializing. One of these members said that once the Bank became confident with reasonable certainty, judging from economic indicators and other supporting evidence, that the baseline scenario was likely to materialize, the Bank should not hesitate to implement a policy change. Based on the above discussion, members agreed, with regard to the relationship between overseas financial markets and economies and Japan's monetary policy, that the latter should be conducted focusing on how the former would affect the projection for and risks to Japan's economic activity and prices. They also agreed that it would be important that the Bank explain this approach in its communication.
On the subprime mortgage problem, members discussed the fundamental nature of the problem and how it would affect monetary policy. Some members expressed the view that the problem was caused by a bringing back into line of excessive financial behavior in the long period of monetary easing, and that it was considered as a case where the risk of "possible larger swings in financial and economic activity based on optimistic assumptions regarding, for example, financial conditions," described in the April Outlook Report, had materialized. One member said that it was important that the Bank conduct monetary policy taking into consideration the long-run consequences of economic and financial activity before they emerged. A few other members expressed the view that excessive positions in markets had already been reduced, and as a result the upside risk arising from excessive monetary easing seemed to have decreased at present. They continued that it was nevertheless appropriate that the Bank maintain the stance of adjusting the level of interest rates in accordance with improvements in the economic and price situation in order to prevent a misallocation of resources in the long run.
on September 18 and 19, 2007
November 5, 2007
Bank of Japan
IV. Summary of Discussions on Monetary Policy for the Immediate Future
Given the economic and financial situation, members concurred that their basic thinking remained unchanged on the monetary policy stance for the immediate future: while confirming that Japan's economy remained likely to follow a path of sustainable growth under price stability in light of the "understanding of medium- to long-term price stability" and assessing relevant risk factors, the Bank would adjust the level of interest rates gradually in accordance with improvements in the economic and price situation.
On the guideline for money market operations for the intermeeting period ahead, one member said that it would be appropriate to raise the uncollateralized overnight call rate target from around 0.5 percent to around 0.75 percent.
Against this view, most members said that it would be appropriate to maintain the current guideline for money market operations that the Bank would encourage the uncollateralized overnight call rate to remain at around 0.5 percent. They expressed the following view: economic indicators suggested that Japan's economy was likely to continue sustainable growth under price stability broadly in line with the projection presented in the April 2007 Outlook for Economic Activity and Prices (hereafter the Outlook Report); however, global financial markets continued to be unstable, and uncertainty regarding global economic developments was heightening due mainly to increasing downside risks to the U.S. economy; and therefore the Bank should continue to examine upcoming economic indicators and other relevant information as well as financial market conditions carefully.
One member said that although Japan's economy was likely to continue sustainable growth under price stability and any policy change should be made in accordance with improvements in the economic and price situation, at present there was time to carefully assess developments in financial markets and the global economy as well as their effects on Japan's economy. A few members said that, as part of that process, it was important to examine how the effects of developments in global financial markets and the U.S. economy would affect the Bank's baseline scenario and confidence regarding the likelihood of the scenario materializing. One of these members said that once the Bank became confident with reasonable certainty, judging from economic indicators and other supporting evidence, that the baseline scenario was likely to materialize, the Bank should not hesitate to implement a policy change. Based on the above discussion, members agreed, with regard to the relationship between overseas financial markets and economies and Japan's monetary policy, that the latter should be conducted focusing on how the former would affect the projection for and risks to Japan's economic activity and prices. They also agreed that it would be important that the Bank explain this approach in its communication.
On the subprime mortgage problem, members discussed the fundamental nature of the problem and how it would affect monetary policy. Some members expressed the view that the problem was caused by a bringing back into line of excessive financial behavior in the long period of monetary easing, and that it was considered as a case where the risk of "possible larger swings in financial and economic activity based on optimistic assumptions regarding, for example, financial conditions," described in the April Outlook Report, had materialized. One member said that it was important that the Bank conduct monetary policy taking into consideration the long-run consequences of economic and financial activity before they emerged. A few other members expressed the view that excessive positions in markets had already been reduced, and as a result the upside risk arising from excessive monetary easing seemed to have decreased at present. They continued that it was nevertheless appropriate that the Bank maintain the stance of adjusting the level of interest rates in accordance with improvements in the economic and price situation in order to prevent a misallocation of resources in the long run.
