By Leika Kihara
TOKYO (Reuters) -Some Bank of Japan policymakers began to lose faith in the power of former Governor Haruhiko Kuroda’s “bazooka” stimulus less than two years after its introduction, with a decision to ramp up the programme in 2014 made by a narrow 5-4 vote, according to a full account of the deliberations released on Wednesday.
Under Kuroda, the BOJ deployed a massive asset-buying programme dubbed “quantitative and qualitative easing” (QQE) in April 2013 to pull Japan out of deflation and fire up inflation to its 2% target in roughly two years.
The BOJ expanded QQE in October 2014 to prevent slumping oil costs and weak consumption from delaying achievement of the price goal. Several more monetary easing steps failed to keep inflation durably around 2% for another decade, forcing the BOJ to prolong what was intended to be a quick-hit stimulus.
The BOJ releases a summary of discussions at each of its policy meeting about a month after it is held with the comments quoted anonymously. A full account of the deliberations, which identify which policymaker made the comments, is released 10 years after each meeting.
The full account of the deliberations revealed for the first time how a significant number of board members had doubts about the effectiveness of QQE which, at the time, was praised for reversing a damaging strong yen, boosting stock prices and brightening corporate sentiment.
At the October 2014 meeting, some board members advocated expanding QQE on the view that failing to achieve the price goal within two years would put the BOJ’s credibility at risk, the full minutes showed.
“Failing to adjust policy would lead to a crumble of trust in our commitment. It also means the accomplishments of QQE up till now could go to waste, something I cannot overlook,” then Deputy Governor Hiroshi Nakaso was quoted as saying.
“It would be too late to act after risks materialise, so we must act pre-emptively by seizing the right opportunity to maximise the effect,” he said.
Others, however, voiced doubts on whether ramping up an already huge stimulus would deliver enough benefits to justify the costs, such as the strain the bank’s huge buying was causing in the bond market.
“The longer we continue with the current policy, the downward pressure on interest rates would strengthen. But the marginal boost to the economy and prices might diminish,” board member Koji Ishida said, calling for a review of the pros and cons of QQE.
Another board member, Takehiro Sato, said it was “hard to understand” whether the risks the BOJ sought to forestall was worth the huge sacrifice of deploying a policy “where the cost did not meet the benefits,” the minutes showed.
