TOKYO (Reuters) - Some Bank of Japan policymakers warned against premature debate of an exit from ultra-loose policy even as they worried about the rising cost of prolonged easing, minutes of the BOJ’s March meeting showed, reinforcing yet again the challenge of hitting an elusive inflation target with a diminishing tool-kit.
The nine-member board took time debating how to best communicate their policy intentions at the March meeting. Some board members said growing market interest on when the BOJ could whittle down its massive stimulus programme was partly behind the recent market volatility, the minutes showed.
“It was important for the BOJ to thoroughly explain to the public ... that the economy had not yet reached a phase where it should consider the timing and measures of a so-called exit from monetary easing,” some members said.
“While normalisation, or a gradual reduction in the degree of monetary accommodation, could become a topic for consideration in the future, the BOJ needs to explain to markets that normalisation ... would be different from monetary tightening,” one of them was quoted as saying.
At the March meeting, the BOJ kept policy steady and its governor signalled readiness to ramp up stimulus if the economy lost steam, in a push-back against speculation it could whittle down monetary support earlier than expected.
The BOJ has a communication challenge as it seeks to play down expectations of an early exit from easy policy, while warning of the growing cost of prolonged ultra-low rates.
“There was a risk financial intermediation would be pulled back if the low-yield environment was further prolonged,” and hurt financial institutions’ profits, one member said.
A few board members called for more scrutiny of the potential demerits of the BOJ’s asset purchases, including its buying of exchange-traded funds (ETF), the minutes showed.
And yet, some board members voiced concern over recent weakness in inflation and consumption in a sign the BOJ could not afford to dial back stimulus any time soon.
“One member said the weakness in the consumption recovery since last summer was a cause of concern,” the minutes showed.
Reporting by Leika Kihara; Editing by Chang-Ran Kim & Shri Navaratnam