Some Members Question the Focus of Monetary Easing, Reports Reuters

By Stanley White

TOKYO – Minutes from the Bank of Japan’s June meeting reveal that at least two board members expressed concerns regarding the sustainability of the central bank’s policies. One board member suggested reducing bond purchases, while another indicated a shift in focus from asset buying to interest rates.

In a surprising move during the subsequent July 29 meeting, the Bank of Japan announced it would conduct a comprehensive review of its quantitative easing measures in September, suggesting that the current policy may be nearing its limits.

Governor Haruhiko Kuroda asserted that the upcoming review would not lead to a reduction in quantitative easing. However, the significant sell-off in government bonds, marking the worst decline in three years, underscores the prevailing uncertainty surrounding the policy approach.

Currently, the Bank of Japan is purchasing 80 trillion yen in Japanese government bonds annually to achieve its 2 percent inflation target. It has also implemented a negative interest rate of minus 0.1 percent and is buying exchange-traded funds (ETFs) at an annual rate of 6 trillion yen.

Some economists argue that the scale of the bond purchases makes it unsustainable in the long term. The negative interest rate policy has been unpopular, as it negatively affects bank profits and continues to keep deposit rates very low. Additionally, there are concerns among investors about the effectiveness of ETF purchases in influencing inflation expectations.

Despite minimal inflation and sluggish global growth, the Bank of Japan opted against further monetary stimulus during the June meeting.