BOJ Minutes Show No Talk of More QQE Before Adopting Minus Rate

At the January meeting where the Bank of Japan surprised markets by adopting a negative rate, the bank’s staff offered another option - expanding record asset purchases, but the minutes show no discussion of that.

Board members did discuss the negative rate proposal in great detail before adopting the rate of minus 0.1 percent, which is charged on some of the reserves that financial institutions hold at the BOJ.

Governor Haruhiko Kuroda indicated this week that the rate could go as low as minus 0.5 percent, and all the board members who supported the new policy said it could be cut further, the minutes showed. The bank’s decision to follow European central banks into negative territory has driven down interest rates in Japan, hit money-market funds, raised concerns over bank profitability and worried lawmakers.

"The minutes reinforce a view that the next easing will be a combination of a rate cut and expansion of QQE," said Yasuhiro Takahashi, an economist at Nomura Securities Co. in Tokyo, referring to the BOJ’s asset purchases. "There wasn’t much explanation why they didn’t expand asset purchases in the minutes but I think that’s probably because the debate would have been about the limits of QQE and they didn’t want to draw attention to it."

Five of the nine board members voted for the negative rate, and the finance ministry representative at the meeting said that the new policy was "necessary for achieving the target of monetary policy."

The term of board member Sayuri Shirai, who opposed the decision, is up at the end of the month. Japanese Prime Minister Shinzo Abe has nominated Makoto Sakurai to replace her.

--With assistance from James Mayger To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net. To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, Jodi Schneider, James Mayger

By: Toru Fujioka

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