Bank of Japan Divided on Future Policy, Meeting Minutes Reveal

Minutes from the October's Bank of Japan meeting revealed policymakers were deeply divided on the appropriate monetary response as the world's second largest economy sinks to recession. The bank settled on lowering borrowing costs by a somewhat bizarre 20 basis points (rate cuts are usually announced in multiples of 25) to bring the benchmark lending rate to 0.30%. Four BOJ governors supported this course of action, three preferred a larger 25bp cut, and one pushed to leave rates unchanged. Governor Maasaki Shirakawa cast the deciding vote. The dissenting voice, Governor Atsushi Mizuno, said the bank should hold off on easing to boost liquidity for corporate and government debt markets (as the minutes suggested) and leave additional room for future rate cuts in case the real economy “worsened further”.

We have noted for some time now that Japan is quickly running out of alternatives to offer meaningful stimulus to the economy: monetary policy has little scope with interest rates already within a hair of 0% and fiscal stimulus could be hit-or-miss given the Japanese consumer's infamous proclivity to favor saving over spending. On balance, this means that proposals of intervention in the currency market to suppress the Yen and boost the export sector (a stand-by crutch for Japanese economic growth) are likely starting to make the rounds among officials.

DailyFX

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