Members of the Bank of Japan’s board warned they were unsure whether the additional costs of further economic support were worth the costs.
In minutes from the October 31 meeting released today, some caution was expressed about increasing the Bank’s monetary support for the economy.
Measures including increasing the Bank’s monetary base from ¥60-70trn (£324bn-£378bn) to ¥80trn and increasing government bond purchases from roughly ¥50trn to ¥80trn surprised the market and were only just passed with a five-four majority.
Some members noted that the effects that could be brought about by additional monetary easing would not be worth the accompanying costs and side effects,” the minutes said.
Concerns included the impact on interest rates, which some members said could fall even further beyond their already historic lows.
Other also questioned whether adding to the programme would have the same impact as when it was first instigated.
“In terms of influence on expectations, some members noted that quantitative and qualitative monetary easing had created the effect of changing people’s expectations at the time of introduction, but that additional steps to expand it would only have limited effects compared with when it was introduced,” the minutes said.
“One of these members added that the sustainability of such effects was questionable. In terms of the costs and side effects of additional monetary easing, a few members pointed to a possible further deterioration in market functioning.”
This included on money market and money reserve funds, which some members said could “face greater difficulty in finding investment opportunities”.
“Furthermore, a few members expressed concern with regard to the effects a further decline in interest rates would have on financial institutions’ profits and their intermediation function,” the minutes said.
“Meanwhile, some members pointed out that, if the Bank purchased JGBs so that their amount outstanding increased at an annual pace of about ¥80trn yen, this would mean the Bank was purchasing most of the JGBs issued on a flow basis.
“Therefore, not only would this considerably squeeze liquidity in the JGB market, but it also would further heighten the risk that such a move would be perceived as effectively financing fiscal deficits.”