Information about http://www.boj.or.jp/en/type/release/teiki/giji/g080715.pdf
Not to be released until…
Tags: affairs department, assistant governor, bank of japan, cabinet office, deputy governor, deputy vice minister, fujioka, government representatives, japan policy, kawakita, ministry of finance, monetary affairs, mr c, mr t, nihonbashi, nishimura, noda, policy coordination, shirakawa, yamaguchi,Pages: 23
Language: english
Created: Thu Aug 21 10:28:40 2008
Display cached document
Page 1
Page 2
Page 3
Page 4
Page 5
Page 6
Page 7
Page 8
Page 9
Page 10
Page 11
Page 12
Page 13
Page 14
Page 15
Page 16
Page 17
Page 18
Page 19
Page 20
Page 21
Page 22
Page 23
Not to be released until 8:50 a.m.
Japan Standard Time on Friday,
August 22, 2008.
August 22, 2008
Bank of Japan
Minutes of the
Monetary Policy Meeting
on July 14 and 15, 2008
(English translation prepared by the Bank's staff based on the Japanese original)
Please contact the Bank of Japan at the address below in advance to request permission
when reproducing or copying the content of this document for commercial purposes.
Secretariat of the Policy Board, Bank of Japan
P.O. Box 30, Nihonbashi, Tokyo 103-8660, Japan
Please credit the source when quoting, reproducing, or copying the content of this
document.
A Monetary Policy Meeting of the Bank of Japan Policy Board was held in the
Head Office of the Bank of Japan in Tokyo on Monday, July 14, 2008, from 2:00 p.m. to
4:31 p.m., and on Tuesday, July 15, from 9:00 a.m. to 1:19 p.m.1
Policy Board Members Present
Mr. M. Shirakawa, Chairman, Governor of the Bank of Japan
Mr. K. G. Nishimura, Deputy Governor of the Bank of Japan
Ms. M. Suda
Mr. A. Mizuno
Mr. T. Noda
Mr. S. Nakamura
Mr. H. Kamezaki
Government Representatives Present
Mr. C. Kawakita, Deputy Vice Minister for Policy Planning and Coordination, Ministry
of Finance
Mr. B. Fujioka, Vice Minister for Policy Coordination, Cabinet Office
Reporting Staff
Mr. H. Yamaguchi, Executive Director2
Mr. A. Horii, Executive Director (Assistant Governor)
Mr. K. Ido, Executive Director
Mr. K. Yamamoto, Executive Director
Mr. M. Amamiya, Director-General, Monetary Affairs Department
Mr. M. Ayuse, Associate Director-General, Monetary Affairs Department3
1
The minutes of this meeting were approved by the Policy Board at the Monetary Policy Meeting
held on August 18 and 19, 2008 as "a document describing an outline of the discussion at the
meeting" stipulated in Article 20, paragraph 1 of the Bank of Japan Act of 1997. Those present are
referred to by their titles at the time of the meeting.
2
Mr. H. Yamaguchi was present on July 14 from 2:00 p.m. to 2:26 p.m. and from 4:00 p.m. to 4:31
p.m., and on July 15 for the whole of the session.
3
Mr. M. Ayuse was present on July 15 from 12:33 p.m. to 1:19 p.m.
1
Mr. S. Uchida, Associate Director-General, Monetary Affairs Department4
Mr. T. Sekine, Associate Director-General, Monetary Affairs Department
Mr. H. Nakaso, Director-General, Financial Markets Department
Mr. K. Momma, Director-General, Research and Statistics Department
Mr. E. Maeda, Associate Director-General, Research and Statistics Department
Mr. T. Nunami, Director-General, International Department
Secretariat of the Monetary Policy Meeting
Mr. K. Osugi, Director-General, Secretariat of the Policy Board
Mr. K. Shigyoh, Director, Deputy Head of Secretarial Services for the Board, Secretariat
of the Policy Board
Mr. S. Yamaguchi, Senior Economist, Monetary Affairs Department
Mr. K. Nakamura, Senior Economist, Monetary Affairs Department
Mr. K. Fujita, Director, Deputy Head, Monetary Operations Planning, Monetary Affairs
Department5
4
Mr. S. Uchida was present on July 14 for the whole of the session, and on July 15 from 9:00 a.m.
to 1:01 p.m.
5
Mr. K. Fujita was present on July 15 from 12:33 p.m. to 1:19 p.m.
2
I. Summary of Staff Reports on Economic and Financial Developments6
A. Money Market Operations in the Intermeeting Period
The Bank conducted money market operations in accordance with the guideline
decided at the previous meeting on June 12 and 13, 2008.7 As a result, the uncollateralized
overnight call rate had been at around 0.5 percent.
B. Recent Developments in Financial Markets
In the money market, Euroyen rates and interest rates on term instruments, such as
yields on financing bills (FBs) and treasury bills (TBs), had been more or less flat on the
whole. Interest rates on Euroyen futures, particularly those with distant contract months,
had decreased.
Japanese stock prices had fallen, following U.S. and European stock prices. The
Nikkei 225 Stock Average had been moving at around 13,000 yen recently.
Long-term interest rates had declined against the background that those in the
United States had declined and market participants' views regarding the outlook for Japan's
economy had become cautious. They had recently been in the 1.6-1.7 percent range.
The yen had been more or less unchanged against the U.S. dollar, albeit with some
fluctuations, and had recently been traded in the range of 107-108 yen against the dollar.
C. Overseas Economic and Financial Developments
Growth in the U.S. economy had remained sluggish. In the housing market,
significant adjustments were still continuing. Private consumption had continued to be
more or less unchanged, and business fixed investment had decelerated noticeably.
Industrial production and the number of employees had continued to decline. As for prices,
the year-on-year rate of increase in consumer prices had been elevated, not only in terms of
the consumer price index (CPI) for all items but also the CPI for all items less energy and
food, or the core CPI, which registered a year-on-year rate of increase of 2.0-2.5 percent.
The economy of the euro area continued to grow, although the pace of growth was
6
Reports were made based on information available at the time of the meeting.
7
The guideline was as follows:
The Bank of Japan will encourage the uncollateralized overnight call rate to remain at
around 0.5 percent.
3
slowing moderately. Business fixed investment remained on an upward trend. Exports
had been on a moderate uptrend, but survey results suggested that their growth was likely to
slow. In addition, housing investment had been on a declining trend, and the pace of
growth in private consumption had slowed. As for prices, the year-on-year rate of increase
in the Harmonized Index of Consumer Prices (HICP) had risen further, reflecting the rise in
energy and food prices. At the regular meeting of the Governing Council on July 3, 2008,
the European Central Bank (ECB) had increased its key interest rate by 25 basis points to
4.25 percent. The U.K. economy had been decelerating mainly due to significant
adjustments in the housing market.
In China, both domestic and external demand continued to expand strongly.
India's economy continued to show relatively high growth, although it was slowing
moderately. The NIEs and ASEAN economies as a whole continued to expand at a
moderate pace, but exports continued to decelerate and some signs of a slowdown in
domestic demand had been observed recently. As for prices, the year-on-year rate of
increase in the CPI for all items had risen in many Asian economies due to the rise in
energy and food prices.
Global financial markets remained unstable due mainly to the rekindling of market
concerns about further losses that U.S. and European financial institutions might incur as
well as to concerns over global inflation. In the U.S. and European financial markets,
stock prices had dropped sharply and long-term interest rates had fallen. Stock prices in
emerging economies had also dropped significantly, due mainly to the rise in inflation.
Monetary policy had been tightened in many emerging economies due to increasing
inflationary pressures.
D. Economic and Financial Developments in Japan
1. Economic developments
Exports had continued to be on an increasing trend, although the pace of increase
had slowed lately. They were expected to stay on an increasing trend, as overseas
economies were likely to expand although at a slower pace.
In relation to domestic private demand, corporate profits had been decreasing
mainly due to the deterioration in the terms of trade, and business sentiment had become
more cautious. In this situation, the pace of increase in business fixed investment had
4
become slower. Growth in business fixed investment was projected to remain somewhat
sluggish for the time being but gradually gain firmness thereafter, since the global economy
was expected to continue expanding and since corporate profits were projected to return to
an upward trend as the rise in energy and materials prices moderated.
Growth in private consumption had recently been somewhat sluggish against the
background of the continued increase in prices mainly of petroleum products and food.
Sales of electrical appliances had continued to increase steadily, assisted by strong sales of
digital appliances such as flat-panel televisions. Growth in the number of new
passenger-car registrations had recently been sluggish partly due to high gasoline prices.
As for nondurable and semi-durable consumer goods, sales at department stores had
continued to be relatively weak, notably in apparel and general merchandise. Sales at
supermarkets had remained more or less flat, while those at convenience stores had recently
increased somewhat partly due to a rise in cigarette sales. As for services consumption,
outlays for travel seemed to have peaked out, while growth in sales in the food service
industry had continued to be sluggish. Consumer sentiment had become more cautious as
a result of widespread rises in prices of petroleum products and food. Growth in private
consumption was likely to be somewhat sluggish for the time being, but with household
income on a gradual uptrend, it was expected to gradually gain firmness thereafter as the
rise in prices came to a halt.
The recovery in housing investment had come to a halt. The number of housing
starts, a leading indicator of housing investment, continued to pick up until January 2008,
but the recovery then stalled. This seemed to be mainly due to the softness in sales of
condominiums and further increases in prices of structural steel. Housing investment was
expected to be more or less flat for the time being, given the stalling of housing starts.
Production had recently been somewhat weak and, in light of developments in
demand both at home and abroad, was expected to be more or less flat in the short run and
return to an increasing trend thereafter. Inventories had been more or less in balance with
shipments.
As for employment and income, in a situation where firms continued to feel a
shortage of labor, household income had been rising moderately. The year-on-year rate of
change in nominal wages per worker had been positive lately. Household income was
expected to follow a moderate rising trend, as it was expected that the labor shortage would
5
persist and production would gradually return to an increasing trend after being flat.
On the price front, international commodity prices had been rising. Crude oil
prices had continued to rise, reaching record highs, and prices of nonferrous metals and
crops, which had been soft some time ago, had strengthened again. The three-month rate
of change in the domestic corporate goods price index (CGPI) was likely to continue to be
positive for the time being, mainly due to the rise in international commodity prices. The
year-on-year rate of change in the CPI (excluding fresh food) was around 1.5 percent. It
was projected to be positive at around the current level or somewhat higher for the time
being, due to the rise in prices of petroleum products and food, in a situation where
aggregate supply and demand in the economy were more or less balanced.
2. Financial environment
The environment for corporate finance was accommodative. Credit demand in
the private sector had been increasing moderately. The issuing environment for CP and
corporate bonds had been favorable as a whole, although issuance spreads on those issued
by firms with low credit ratings had remained relatively high. The lending attitudes of
private banks had continued to be generally accommodative, and the amount outstanding of
lending by private banks had been increasing. The amount outstanding of CP and
corporate bonds issued had been above the previous year's level. Funding costs for firms
had been more or less unchanged. The financial positions of firms as a whole had
continued to be favorable, but those of small firms had deteriorated somewhat. The
year-on-year rate of growth in the money stock (M2) was around 2 percent.
II. Summary of Discussions by the Policy Board on Economic and Financial
Developments
A. Economic Developments
Members agreed on the following assessment of the current state of Japan's
economy: economic growth was slowing further reflecting weaker growth in business fixed
investment and private consumption against the backdrop of high energy and materials
prices; while growth would likely remain slow for the time being, the economy was
expected to gradually return onto a moderate growth path thereafter.
Members agreed that, although overseas economies taken as a whole continued to
6
expand, downside risks remained elevated, mainly reflecting the disruptions in global
financial markets and sluggish growth in the U.S. economy.
Members shared the view that global financial markets remained unstable, mainly
due to market concerns about further losses that U.S. and European financial institutions
might incur and to rising global inflationary pressures.
Members concurred that growth in the U.S. economy had remained sluggish and
that there was considerable uncertainty regarding when and how the negative feedback loop
between financial markets, asset prices, and economic activity would diminish. They
agreed that adjustments in the housing market were still continuing as seen in a faster pace
of decline in home prices, and there were no signs of the housing market bottoming out.
Some members said that, although retail sales had picked up recently owing to tax rebates,
they could not confirm improvement in the underlying trend of private consumption given
that the employment situation continued to deteriorate and consumer sentiment had become
more cautious. These members were of the view that attention should be paid to the
possibility that private consumption would weaken as the effects of tax rebates dissipated.
With regard to European economies, members shared the view that the economy
of the euro area continued to grow, although the pace of growth was slowing moderately.
A few members, however, added that the difference in economic growth between euro area
countries had been widening. A few other members said that survey results suggested a
possible further slowdown in economic growth of the euro area.
On Asian economies, members concurred that China and India continued to show
high growth. They also agreed that, although the pace of growth in exports in the NIEs
and ASEAN economies had started to slow and there had been signs of a slowdown in
domestic demand against the backdrop of the rise in energy and food prices, these
economies as a whole continued to expand at a moderate pace.
Regarding global price developments, members agreed that inflationary pressures
were increasing further globally, reflecting the rise in international commodity prices,
particularly crude oil prices. Some members said that general prices had increased in
some economies due not only to the rise in energy and materials prices but also to
second-round effects, and expressed the view that the tightening of monetary policy might
be insufficient in these economies.
Members concurred that Japan's exports had continued to be on an increasing
7
trend against the background of the expansion of overseas economies, although the pace of
increase had slowed lately, and that they were likely to stay on an increasing trend. Some
members, however, said that the deceleration of overseas economic growth seemed to be
starting to affect Japan's exports, and therefore due attention should be paid to the degree of
the deceleration.
In relation to domestic private demand, members agreed that corporate profits had
been decreasing mainly due to the deterioration in the terms of trade, and business
sentiment had become more cautious. They also concurred that the pace of increase in
business fixed investment had become slower. Many members commented on the results
of the June 2008 Tankan (Short-Term Economic Survey of Enterprises in Japan) that while
fixed investment plans of small firms and large nonmanufacturing firms were somewhat
weak, those of large manufacturers were relatively firm. These members were of the view
that large manufacturers might be increasing investment aimed at, for example, meeting
medium- to long-term demand for their products and energy saving in view of the rise in
energy prices. They added, however, that attention should be paid to the risk that,
depending on future economic developments, firms might postpone implementation of their
fixed investment.
Members concurred that growth in private consumption had recently been
somewhat sluggish against the background of the continued increase in prices of petroleum
products and food. Some members noted that it was reported at the meeting of general
managers of the Bank's branches held on July 7, 2008 that many regions' economic
assessments had been revised downward from the previous assessments, reflecting the
sluggish growth in private consumption due to price rises. Members agreed that growth in
private consumption was likely to be somewhat sluggish for the time being, but was likely
to gradually gain firmness thereafter as the rise in prices came to a halt.
As for employment and income, members shared the view that household income
had been rising moderately. A few members, however, said that firms were keeping bonus
payments down given the decrease in their profits. A few other members expressed the
view that marginal demand for labor might be weakening somewhat, noting the fact that the
pace of increase in the number of employees in the Labour Force Survey had been slowing
recently and the ratio of job offers to applicants had continued to decline.
Members concurred that the recovery in housing investment had come to a halt,
8
and housing investment was likely to be more or less flat for the time being. Some
members said that the stalling of the recovery in housing investment was mainly due to the
softness in sales of condominiums and the rise in prices of building materials.
Members agreed that production had recently been somewhat weak and was likely
to be more or less flat in the short run and return to an increasing trend thereafter.
As for prices, members said that the three-month rate of change in the CGPI had
been positive, mainly due to the rise in international commodity prices, and the CGPI was
likely to continue increasing for the time being.
Members concurred that the year-on-year rate of increase in the CPI (excluding
fresh food) was rising mainly due to the rise in prices of petroleum products and food. As
in the previous meeting, members exchanged views regarding the effects on general prices
of the rise in energy and materials prices. Many members said that wages had not risen
markedly in Japan and to date there had been no sign of second-round effects from the rise
in prices of petroleum products and food. Some members remarked that firms had
increasingly been linking changes in wages, especially bonuses, to corporate performance
and were likely to maintain their stance of restraining wages for the time being given the
current decrease in their profits. One member commented that consumers were becoming
accustomed to price increases and firms were gradually becoming more inclined to pass on
higher costs to sales prices. The member continued that the Bank should keep close watch
for any sign of second-round effects. A different member said that the possibility of
second-round effects emerging depended on inflation expectations of households and firms,
but these were difficult to measure and a wide range of indicators should therefore be
carefully monitored, paying attention especially to developments in wages. Some
members said that the high global inflation in the 1970s seemed to be partly attributable to
failure to correctly estimate the output gap and expansionary monetary policy, and the
lessons learned from this experience should always be borne in mind. Based on these
assessments of the situation, members agreed that factors affecting prices such as
consumers' inflation expectations and firms' price-setting behavior should be watched even
more closely amid the continuing surge in international commodity prices.
With regard to the interim assessment of the projection presented in the Outlook
for Economic Activity and Prices (hereafter the Outlook Report) released in April 2008,
members concurred that energy and materials prices had been higher than assumed in the
9
April Outlook Report, and this was having effects on both economic activity and prices.
They also agreed that, compared with the projection in the April Outlook Report, growth
prospects had shifted somewhat downward, mainly for fiscal 2008, while prospects for
inflation, in terms of both the CGPI and the CPI (excluding fresh food), had shifted upward,
again mainly for fiscal 2008.
B. Financial Developments
Members concurred that financial conditions in Japan remained accommodative.
They also agreed that the issuing environment for CP and corporate bonds had been
favorable as a whole, although issuance spreads on those issued by firms with low credit
ratings had remained relatively high, and that the lending attitudes of financial institutions
had been generally accommodative. They noted, however, that while the financial
positions of firms as a whole had continued to be favorable, those of small firms and firms
in some industries had deteriorated somewhat as evidenced by the June Tankan and other
survey results.
III. Summary of Discussions on the Bank's Strategy for Communication regarding
the Conduct of Monetary Policy
Members reviewed the Bank's strategy for communication regarding its conduct of
monetary policy. They had recognized at previous meetings that the Bank should always
strive to ensure it employed effective tools for communicating with market participants, and
at this meeting they discussed comprehensively the Bank's communication strategy. They
agreed that the Bank should consider adopting measures to better provide timely and
thorough explanation of its thinking in line with the "Framework for the Conduct of
Monetary Policy" introduced in March 2006.
Members were in agreement on the following four measures. The first measure
was the release of the assessment of the economic and price situation from the "two
perspectives" after each meeting, rather than releasing it only after the Bank made a change
in policy. This would enable the Bank to explain its thinking concerning the conduct of
monetary policy swiftly in response to changes in the situation. The second was the
extension of the forecast horizon for projections in the Outlook Report -- specifically, the
release of projections for economic activity and prices and the Risk Balance Charts
10
covering an average of about two fiscal years ahead -- given that the effects of monetary
policy appeared with a long and variable lag. The third was the provision of the forecasts
of Policy Board members and the Risk Balance Charts not only in the Outlook Reports
released in April and October but also at the time of the interim assessments in January and
July. This would enable the Bank to describe a change in the situation in a more timely
and clear manner. And the fourth was the release of the minutes of the Monetary Policy
Meeting following approval at the first subsequent meeting, because the minutes should be
released as soon as possible to provide information in a timely manner.
Members agreed that it was appropriate that the Bank take the above four
measures in order to improve the effectiveness of monetary policy as well as its
accountability to the public as an independent central bank. Many members said that the
forecasts of Policy Board members and the Risk Balance Charts were merely reference
materials supplementary to the written explanations of the mechanisms behind
developments in the economy and prices, and this should be understood by the public,
including market participants. Many members expressed the view that a quarterly release
of the forecasts of Policy Board members and the Risk Balance Charts seemed appropriate
in terms of frequency, taking into account the practice of other central banks. As regards
this frequency, some members said that, although it was important that the Bank react
swiftly to a change in the economic and price situation, reviewing the forecasts of Policy
Board members every time monthly economic data were released, for example, would only
confuse market participants.
The Policy Board decided, by a unanimous vote, to make public the measures to
further enhance the Bank's communication strategy by the attached statement (see
Attachment 1).
IV. Summary of Discussions on Monetary Policy for the Immediate Future
Members shared the following view: (1) Japan's economic growth was slowing
further reflecting weaker growth in business fixed investment and private consumption
against the backdrop of high energy and materials prices; (2) while growth would likely
remain slow for the time being, the economy was expected to gradually return onto a
moderate growth path thereafter; and (3) the CPI inflation rate (excluding fresh food) was
currently around 1.5 percent year on year due to increased prices of petroleum products and
11
food, and was expected to gradually moderate after becoming somewhat elevated in coming
months. Based on the discussion, members made an assessment in terms of the first
perspective, that is to say, they assessed the most likely outlook for economic activity and
prices. They agreed that the probability of Japan's economy remaining on a sustainable
growth path with price stability was relatively high.
Members then made an assessment in terms of the second perspective, that is to
say, they examined the risks that they considered most relevant to the conduct of monetary
policy, including risks that had a longer time horizon than the first perspective. Regarding
economic developments, members shared the following view: (1) global financial markets
remained unstable as evidenced by the fact that, due mainly to market concerns about
further losses that U.S. and European financial institutions might incur, various credit
spreads had been widening again and stock prices had fallen; (2) there were downside risks
to the world economy, mainly reflecting sluggish growth in the U.S. economy; and (3)
weaker income generation due to the upsurge in international commodity prices had the
potential to weigh on domestic private demand. As for prices, members agreed on the
following view: (1) inflationary pressures were increasing further globally given the high
international commodity prices, particularly crude oil prices; and (2) in Japan, it was
necessary to be mindful of upside risks to inflation due to changes in, for example, the
inflation expectations of households and the price-setting behavior of firms in addition to
developments in energy and materials prices.
Some members were of the opinion that, if the downside risks to the economy
turned out to decrease, this would increase the risk of possible swings in economic activity
and prices due to a prolonged period of accommodative financial conditions, and this risk
should therefore always be borne in mind. Some members expressed the view that at
present the Bank should pay attention to both downside risks to economic growth and
upside risks to inflation and carefully assess economic and price developments focusing on
whether Japan's economy would achieve sustainable growth with price stability.
As a result of the assessment of economic activity and prices described above,
members concurred that the following thinking on the monetary policy stance for the future
remained unchanged: the Bank, while maintaining the smooth functioning of the money
market, would carefully assess the future outlook for economic activity and prices, closely
considering the likelihood of its projections materializing as well as factors posing upside or
12
downside risks, and would implement appropriate policies in an accordingly flexible
manner.
Regarding the guideline for money market operations for the intermeeting period
ahead, members agreed that it would be appropriate to maintain the current guideline that
the Bank would encourage the uncollateralized overnight call rate to remain at around 0.5
percent.
V. Remarks by Government Representatives
The representative from the Ministry of Finance made the following remarks.
(1) Although Japan's economy was expected to resume its moderate recovery, attention
should be paid to the fact that downside risks to the economy had increased, mainly due
to concerns about a further slowdown in the U.S. economy, swings in stock prices and
exchange rates, and developments in crude oil prices.
(2) Given this economic situation, the government would like the Bank to continue to
support the economy from the financial side so as to ensure the sustainability of the
economic recovery.
(3) Developments in prices such as crude oil prices, the effects of the U.S. subprime
mortgage problem, and developments in the global economy, particularly the U.S.
economy, should continue to be watched closely. The government would like the
Bank to carefully monitor both the effects of developments in these areas on Japan's
economy and developments in financial markets, and continue to react appropriately to
changes in trends. The Ministry of Finance would also give due consideration to
developments in the economy and financial markets, both at home and abroad.
(4) As it had mentioned in previous meetings, the government would like the Bank to
continue to clearly explain to market participants and the public its view regarding the
future course of Japan's economy and its thinking on the conduct of monetary policy.
The representative from the Cabinet Office made the following remarks.
(1) There appeared to be a pause in the recovery of Japan's economy taken as a whole, and
some weakness had been seen lately. Although the economy was expected to resume
its moderate recovery, future developments warranted careful attention since the
downside risks to the economy were increasing. With regard to the Bank's interim
13
assessment of the April 2008 Outlook Report about to be made, the government would
like the Bank to clearly explain the deviation from the April projection of and future
outlook for economic activity and prices, giving due consideration to the underlying
trend in prices, in other words, the price trend excluding the effects of, for example,
developments in crude oil prices.
(2) The government had set out "Emergency Measures for the Surge in the Crude Oil
Price." The Cabinet had approved "Basic Policies 2008," which indicated the course
of economic and fiscal reforms aimed at boosting the growth potential of the economy
and realizing for Japan's people a prosperous life free from anxiety. In accordance
therewith, the government would accelerate and deepen the reforms.
(3) In order to ensure sustainable economic growth led by private demand and achieve a
stable inflation rate that would be compatible with that growth, it was important for the
government and the Bank to implement their policies based on the shared basic
perspective on macroeconomic management.
(4) The government would like to request the Bank to implement monetary policy in a
timely and appropriate manner that was consistent with the government's policy efforts
and its outlook for the economy, and to firmly support the economy from the financial
side, paying due attention to economic and price developments in view of downside
risks to the outlook for the economy and risks to the outlook for prices.
VI. Votes
Based on the above discussions, members agreed that it was appropriate to
maintain the current guideline for money market operations, which encouraged the
uncollateralized overnight call rate to remain at around 0.5 percent.
To reflect this view, the chairman formulated the following proposal and put it to
the vote.
The Chairman's Policy Proposal on the Guideline for Money Market Operations:
1. The guideline for money market operations for the intermeeting period ahead will be as
follows.
14
The Bank of Japan will encourage the uncollateralized overnight call rate
to remain at around 0.5 percent.
2. A public statement will be decided separately.
Votes for the proposal: Mr. M. Shirakawa, Mr. K. G. Nishimura, Ms. M. Suda, Mr.
A. Mizuno, Mr. T. Noda, Mr. S. Nakamura, and Mr. H. Kamezaki.
Votes against the proposal: None.
VII. Discussion on the Public Statement "Statement on Monetary Policy"
Members discussed the "Statement on Monetary Policy," and put it to the vote.
The Policy Board decided the text by a unanimous vote. It was confirmed that the
statement would be released immediately after the meeting (see Attachment 2).
VIII. Approval of the Minutes of the Monetary Policy Meeting
The Policy Board approved unanimously the minutes of the Monetary Policy
Meeting of June 12 and 13, 2008 for release on July 18, 2008.
IX. Discussion on the Maintenance of a Designated Minimum Balance by the Shoko
Chukin Bank with the Bank
A. Staff Proposal
Given that the Shoko Chukin Bank was scheduled to be converted into a
joint-stock company on October 1, 2008, the staff proposed that, in order to ensure smooth
conduct of monetary policy, the Bank enter into a contract with the Shoko Chukin Bank,
whereby the latter would undertake to maintain a designated minimum balance in a current
account with the Bank.
B. Discussion by the Policy Board and Vote
Members voted unanimously to approve the proposal and agreed that the decision
should be made public.
15
Attachment 1
July 15, 2008
Bank of Japan
Further Enhancement of Communication Strategy
under the "Framework for the Conduct of Monetary Policy"
At the Monetary Policy Meeting (MPM) held today, the Bank of Japan decided to adopt
following enhancements to its communication strategy under the "Framework for the
Conduct of Monetary Policy" (hereafter "Framework") introduced in March 2006. Given
that economic situation is ever-changing, future outlook always entails uncertainties, and
monetary policy works with a lag, these enhancements are introduced to better provide
timely and thorough explanation regarding the current situation and future course of the
economy and prices as well as risk factors in line with the "Framework."
1. Release of the Assessment from "Two Perspectives" after Each MPM
Under the "Framework," the conduct of monetary policy is decided at each MPM through
assessing economic and price situation from "two perspectives." Previously, in the
announcement following the meeting, the policy decision and its background were
communicated when there was a change in policy, whereas in cases when there was no
change in policy, only the decision was communicated. Hereafter, following each meeting,
a summary of the assessment of economic and price situation from "two perspectives," and
the Bank's thinking on the future conduct of monetary policy will be communicated along
with the policy decision.
Meanwhile, the Monthly Report of Recent Economic and Financial Developments
will be released on the first business day (second business day for English translation)
following the MPM as a background document.
16
2. Extension of the Forecast Horizon for Projections in the Outlook for Economic
Activity and Prices
The Forecast horizon for projections in the Outlook for Economic Activity and Prices
(Outlook Report) had been two fiscal years (current and the following fiscal year).
Starting this October, however, projections in the October Outlook Report will extend to the
fiscal year after next.
3. Quarterly Publication of the Forecasts of Policy Board Members and the Risk
Balance Charts
The Risk Balance Charts introduced in the April 2008 Outlook Report will be provided
regularly in the semi-annual Outlook Report. In addition, the forecasts of Policy Board
members and the Risk Balance Charts will also be provided at the time of interim
assessment in January and July as references.
4. Release of the Minutes of the MPM after the Subsequent Meeting upon Approval
Minutes of the MPM will be released after the subsequent meeting upon approval, whereas
they were previously approved either at the subsequent meeting or meeting after next
depending on the meeting schedule.
17
Attachment 2
July 15, 2008
Bank of Japan
Statement on Monetary Policy
1. At the Monetary Policy Meeting held today, the Bank of Japan decided, by a
unanimous vote,[Note] to set the following guideline for money market operations for the
intermeeting period:
The Bank of Japan will encourage the uncollateralized overnight call rate
to remain at around 0.5 percent.
2. Economic growth is slowing further reflecting weaker growth in business fixed
investment and private consumption against the backdrop of high energy and materials
prices. While growth will likely remain slow for the time being, it is expected to
gradually return onto a moderate growth path thereafter. CPI inflation rate (excluding
fresh food) is currently around 1.5 percent due to increased prices of petroleum
products and food. CPI inflation is expected to gradually moderate after becoming
somewhat elevated in coming months. These suggest that the possibility of the
economy remaining on a sustainable growth path with price stability is relatively high.
3. Compared with the projections presented in the April Outlook for Economic Activity
and Prices (Outlook Report), growth prospects have shifted somewhat lower, while
prospects for inflation, in terms of both CGPI and CPI (excluding fresh food), have
shifted higher, mainly for fiscal 2008.
[Note]
Voting for the action: Mr. M. Shirakawa, Mr. K. G. Nishimura, Ms. M. Suda, Mr. A. Mizuno,
Mr. T. Noda, Mr. S. Nakamura, and Mr. H. Kamezaki.
Voting against the action: None.
18
4. With regard to risk factors, global financial markets remain unstable and there are
downside risks to the U.S. and the world economy. In addition, weaker income
generation due to upsurge in commodity prices has the potential to weigh on domestic
private demand. These downside risks to the economy demand attention. On prices,
inflationary pressures are increasing globally. In Japan, it is necessary to be mindful
of upside risks due to changes in the inflation expectations of households and the
price-setting behavior of firms in addition to developments in energy and materials
prices. Meanwhile, if the downside risks to the economy turn out to decrease, this will
increase the risk of possible swings in economic activity and prices due to prolonged
period of accommodative financial conditions.
5. The Bank, while maintaining the smooth functioning of the money market, will
carefully assess the future outlook for economic activity and prices, closely considering
the likelihood of its projections as well as factors posing upside or downside risks, and
will implement its policies in an accordingly flexible manner.
19
(Appendix 1)
Forecasts of the Majority of Policy Board Members
y/y % chg.
Real GDP Domestic CGPI CPI (excluding fresh food)
+1.2 to +1.4 +4.7 to +5.0 +1.7 to +1.9
Fiscal 2008
[+1.2] [+4.8] [+1.8]
Forecasts made in +1.4 to +1.6 +2.4 to +2.8 +0.9 to +1.1
April 2008 [+1.5] [+2.5] [+1.1]
+1.4 to +1.6 +1.8 to +2.0 +1.0 to +1.2
Fiscal 2009
[+1.5] [+1.8] [+1.1]
Forecasts made in +1.6 to +1.8 +1.3 to +1.8 +0.8 to +1.0
April 2008 [+1.7] [+1.5] [+1.0]
Notes: 1. Figures in brackets indicate forecast medians.
2. Individual Policy Board members make the above forecasts with reference to
the view of market participants regarding the future course of the policy
interest rate -- a view that is incorporated in market interest rates.
3. The forecasts of the majority of Policy Board members are constructed as
follows: each Policy Board member's forecast takes the form of a point
estimate, namely the figure to which he or she attaches the highest
probability. These forecasts are then shown as a range, with the highest
and lowest figures excluded. It should be noted that the range does not
indicate the forecast errors.
4. The forecasts of all Policy Board members may be summarized as follows.
y/y % chg.
Real GDP Domestic CGPI CPI (excluding fresh food)
Fiscal 2008 +1.1 to +1.5 +4.6 to +5.2 +1.5 to +2.0
Forecasts made in
+1.4 to +1.8 +2.3 to +2.9 +0.9 to +1.2
April 2008
Fiscal 2009 +1.4 to +1.7 +1.7 to +2.4 +1.0 to +1.3
Forecasts made in
+1.5 to +1.9 +1.3 to +1.9 +0.8 to +1.1
April 2008
20
(Appendix 2)
Risk Balance Charts
(1) Real GDP (2) CPI (Excluding Fresh Food)
FY 2008 FY 2008
50 25
45
40 20
35
30 15
25
20 10
15
10 5
5
0 0
FY 2009 FY 2009
50 25
45
40 20
35
30 15
25
20 10
15
10 5
5
0 0
4.0 and above
-0.6 and below
-0.5 to -0.1
0.0 to 0.4
0.5 to 0.9
1.0 to 1.4
1.5 to 1.9
2.0 to 2.4
2.5 to 2.9
3.0 to 3.4
3.5 to 3.9
-0.2 and below
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2.8
3.0 and above
Notes: 1. Vertical axes in the charts represent probability (%), while horizontal axes represent the
year-on-year percentage changes in the respective indicators. Bar charts represent the
probability distributions in July 2008, and solid lines represent those in April 2008.
2. on the dashed line indicates the median of the Policy Board member's forecasts (point
estimates). indicates the range of the forecasts of the majority of Policy Board
members. indicates the range of the forecasts of all Policy Board members.
3. For the process of compilation of the Risk Balance Charts, see the box on page 9 of the April
2008 Outlook for Economic Activity and Prices .
21