Friday, January 19, 2007
BOJ’s Policy Decision Caps Month Of Behind-The-Scene Maneuvers
TOKYO (Nikkei)–Thursday’s decision by the Bank of Japan’s policy board to maintain its existing monetary policy wrapped up roughly a month of mixed messages from central bank officials, behind-the-scene consensus building and widespread market speculation about its next move.
The nine-member board voted 6-3 to keep the unsecured overnight call rate target unchanged at 0.25%. The split vote suggests that policy board members wavered until the very end. Government officials and market participants alike were unable to read the BOJ’s policy intentions, adding to the general confusion.
When asked at a news conference whether it was his idea to have the central bank forgo an interest rate hike, Fukui paused before responding, “It is true that I submitted the proposal without hesitation.”
Fukui, who is of the opinion that interest rate levels are too low, also considered a possible rate hike at the policy board’s December meeting. But at the time, lackluster consumer spending and price conditions prompted the BOJ to maintain the status quo, a decision that it revisited at its latest meeting.
When the policy board members met on Dec. 28 to assess economic conditions, they all agreed that the economic expansion was still on track. The pace of decline in real consumer spending for November narrowed, while the consumer price index for that month showed slightly larger growth. One board member who attended the meeting came away with the impression that Fukui was leaning toward a rate hike in January.
Enlargement
On Jan. 8 Fukui was in Switzerland, attending a conference with other central bankers. Upon return from the trip, he told policy board members that economies around the world were still bullish. On the domestic front, BOJ branch managers in a meeting on Jan. 12 reported improvements in consumer spending.
In light of such factors, board members Miyako Suda, Tadao Noda and Atsushi Mizuno — who all voted Thursday against keeping rates unchanged — were believed to have concluded that the environment was increasingly in favor of tightening monetary policy.
But senior board members were apparently more cautious, with Deputy Governor Kazumasa Iwata especially reluctant to go ahead with a January rate hike, according to a source familiar with the matter. Fukui, who chairs the policy board, then focused on building a consensus to ensure that he, Iwata and Deputy Governor Toshiro Mutoh were on the same page.
Urging caution about raising rates, the government also had a strong interest in the BOJ’s plans leading up to Thursday’s meeting. Some government officials had concluded that a January rate hike was not in the offing due to the absence of any indications from the BOJ that such a move was in the works. But when the media began reporting last Friday that the central bank was leaning toward a rate hike, Ministry of Finance and Cabinet Office officials began harboring concerns.
During a speech Sunday, Liberal Democratic Party Secretary-General Hidenao Nakagawa said the government had the option of exercising its right to request a delay in a policy board vote if the central bank were to call for a rate hike. Prime Minister Shinzo Abe’s aides also expressed concern that raising rates could have a negative impact on the upper house elections later this year.
Finance Minister Koji Omi said Tuesday that the government was not looking to delay the vote, prompting some news organizations to interpret this as a tacit acceptance of a rate hike. This interpretation proved incorrect, however, as Omi only meant that the government did not want to rile the BOJ if it was not planning to raise rates anyway.
BOJ officials were also loath to rush into a rate hike while the conditions were not fully ripe. With senior policy board members still not in full agreement, Fukui is believed to have deemed it safer to pass up a rate hike at this point.
But Mizuno, Suda and Noda submitted their own joint proposal calling for a rate increase.
At a news conference that followed the two-day policy board meeting concluded Thursday, Fukui downplayed the 6-3 vote to keep the unsecured overnight call money rate unchanged. “Some people believe there is still some time left before we have to make a decision (to raise interest rates), while others believe there’s no reason to take more time. The difference is extremely slight,” he explained.
(The Nikkei Friday morning edition)