BOJ Board Agrees In Jul To Check Risks Before Action

TOKYO -(Dow Jones)- Most Bank of Japan board members agreed at their July policy setting meeting that the central bank should wait and see whether their April forecast for the nation's economy to achieve about 2% growth materializes before raising interest rates.

Meeting minutes released by the BOJ Tuesday showed that policy makers were in agreement that the economy and prices continue to move in line with their forecast, suggesting they could consider raising interest rates if conditions warrant a hike in the coming months.

"The Bank should continue to examine various indicators and other relevant information carefully to be more certain whether the April forecast is likely to materialize and identify the risk factors," the minutes showed.

The policymakers voted by 8-to-1 to keep monetary policy steady at the July meeting in the first split vote by the board members in five months.

The minutes also confirmed that Atsushi Mizuno, who is regarded as the most hawkish member, was the sole member against keeping policy steady.

He proposed to lift the key interest rate from 0.50% to possibly 0.75% at the July meeting.

"Economic developments have deviated slightly above or at least been in line with the April forecast and in addition, the probability that the downside risks mentioned in the April outlook report would materialize remained low," the minutes quoted Mizuno as saying.

The minutes showed that board members thought it was important to explain at every opportunity the BOJ's basic thinking on how it conducts monetary policy and to clearly explain its assessment of both current and future developments in economic activity and prices to prevent market players from forming preconceived ideas about the timing of policy changes.

On the subject of inflation, the board members maintained the view that on-year changes in core consumer prices are expected to stay in positive territory, judging from a tight labor market and a positive gap between supply and demand in the economy.

However, one member noted that "attention should be paid to the risk that inflationary pressure might start to grow stronger than expected." But the minutes showed that the view wasn't shared by the rest of the nine-board members.


Global Econ May Worsen If Subprime Affects Credit Mtks




The BOJ policy makers maintained the view that the U.S. economy will likely achieve a soft-landing toward the end of the year, according to the minutes.

But some members expressed concerns about the future economy, saying "if subprime loan issues seriously affect credit markets - although this is not likely to happen - the possibility could not ruled out that the economic and financial situation worldwide, including in Japan, would be negatively affected."

One member said that adjustments in the U.S. housing market have become less important for Japan's monetary policy, as the issue has become a problem limited to certain areas of the financial sector rather than one involving economic fundamentals.

The minutes showed that the BOJ policy makers see the development of the subprime loan issue and the impact on the economy and global markets as holding the key to the BOJ's rate hike decision.

A representative from the Ministry of Finance, as he did at the June meeting, emphasized the need for the BOJ to carefully assess prices.

He added that the government hopes the central bank will continue to support the economy through monetary policy, suggesting the government doesn't want the BOJ to raise interest rates anytime soon.