BOJ Debated Buying Assets Open-Endedly in November: Minutes

Bank of Japan
Bank of Japan

Bank of Japan policymakers debated various options, such as an open-ended commitment to buy assets, as early as in November, minutes of the bank's rate review showed, a sign they were already leaning toward action back then on the worsening economic outlook.

The central bank stood pat at the November meeting but eased policy at a subsequent rate review in December in response to intensifying pressure from the incoming Prime Minister Shinzo Abe to take bolder action to beat deflation.

The minutes showed that the nine-member board was pondering policy options even before Abe turned up the heat, concerned over looming risks to the economy such as slumping sales in China due to souring diplomatic relations with the country.

"Some members said the central bank must act decisively, without ruling out any policy options, if the outlook for the economy and prices worsens further, or if risks heighten substantially," minutes of the Nov. 19-20 meeting showed on Wednesday.

(Read More: Is Bank of Japan Already Dancing to Abe's Tune?)

Board members Takehiro Sato and Takahide Kiuchi repeated their calls to strengthen the BOJ's commitment to maintaining its ultra-easy policy, partly to help weaken the yen.

One of them suggested that the central bank could commit to buying assets in an open-ended manner -- or without setting a strict deadline -- until 1 percent consumer inflation is achieved.

Other members were cautious of the idea, arguing that doing so would have little effect in pushing down already-low bond yields because markets already have confidence that the central bank will keep monetary policy ultra-loose for a prolonged period, the minutes showed.

Another idea, likely floated by a commercial banker-turned board member Koji Ishida, was for the BOJ to scrap a 0.1 percent interest it pays to excess reserves financial institutions park with the central bank.

Such a move would push down yields on Japanese treasury discount bills and help weaken the yen, he was quoted as saying at the meeting.

(Read More: 'Obscene' Stimulus Will Trigger 'Made in Japan' Crisis)

None of the ideas were formally proposed for a vote at the November meeting, when the board decided unanimously to keep monetary settings unchanged. But Ishida proposed the idea at the December meeting, which was turned down by a 8-1 vote.

At the November meeting, many board members warned of uncertainties over Japan's economic outlook with a few of them acknowledging that it had slipped into recession around spring this year, a view shared by most private-sector economists.

"Members agreed that if the overseas slowdown persists, a pickup in exports and factory output could be delayed, and inflict further damage to domestic demand," according to the minutes.

The board was divided on when Japan will emerge from the doldrums, with some projecting it to be around the middle of next year and one other saying it could take until the latter half of 2013, the minutes showed.