Bank of Japan board member Atsushi Mizuno voted against the Oct. 31 decision to cut interest rates, saying the central bank should focus on measures to promote the flow of money through the financial system, minutes show.
Mizuno dissented because “the current policy priority of the bank was to implement measures to enhance the smooth flow of funds” in corporate and government debt markets, according to the minutes released today. The board should leave room for further actions in case the economy “worsened further,” he said.
The bank trimmed the benchmark overnight rate to 0.3 percent from 0.5 percent at the meeting to help stave off a prolonged recession. Four of the eight members supported the move, three preferred a cut to 0.25 percent, and Mizuno wanted the rate to stay on hold. Governor Masaaki Shirakawa cast the deciding vote.
The yen was little changed, trading at 95.51 per dollar as of 9:39 a.m. in Tokyo from 95.56 before the minutes were published. Investors see a 9 percent chance of another rate cut by March, according to JPMorgan Chase & Co. calculations based on interest-rate swaps trading.
Miyako Suda, Hidetoshi Kamezaki and Seiji Nakamura were the members who proposed a bigger reduction.
Suda said lowering the rate by an interval other than the “conventional 25 basis points” could “increase uncertainty” about the size of future adjustments. Kamezaki said a smaller move “might convey the impression that the bank was holding back from taking decisive policy action or that there was room for further” cuts. Nakamura said a 25 basis-point cut wouldn’t adversely affect the money market.
Money Market
Deputy Governors Hirohide Yamaguchi and Kiyohiko Nishimura, together with board member Tadao Noda, joined Shirakawa in supporting the 20 basis point reduction to 0.3 percent. They said a larger cut would impede the function of the money market and hamper the flow of funds through the economy.
Since the meeting, Shirakawa has warned at least six times that further lowering borrowing costs may freeze up the money market by making it unprofitable for banks to lend each other. Economists say the bank could be forced to follow the Federal Reserve and the European Central Bank in trimming rates anyway, should the global financial turmoil prolong Japan’s slump.
“Given that Governor Shirakawa has signaled his reluctance to further lower rates, the chance for a December cut may be receding,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “Even so, we expect the bank to be forced to cut rates near zero eventually.”
