Monetary policy meeting minutes released for six months starting three months after the start of extraordinary easing

The Bank of Japan has released the minutes of the six-month monetary policy meeting that began in July 2013, three months after it began so-called unprecedented easing under former Governor Kuroda. At the time, speculation about revisions to U.S. monetary policy caused turbulence in financial markets, indicating that policy committee members were acutely aware of the risks involved in normalizing monetary policy.

In May 2013, the month after the Bank of Japan began a new level of easing, Chairman Bernanke, who was then leading the US central bank, the Federal Reserve, announced the scale of quantitative easing, which would supply large amounts of funds to the market. After pointing out the possibility of a contraction, there was a growing view that the flow of easing money would change, and turmoil spread in financial markets.

In light of this situation, at the meeting in August of this year, Councilor Tohide Kiuchi ``highlighted the risks of unconventional policies in that moves toward normalization are likely to destabilize financial markets.'' Japan needs to pay particular attention to this risk, as its fiscal environment is extremely poor compared to other countries, and a significant rise in interest rates could directly lead to a simultaneous fiscal crisis and financial system crisis.

Furthermore, at the September meeting, then-Vice Governor Hiroshi Nakaso said, ``Will the market regain its calm once the scale of quantitative easing actually begins?I think it will be very difficult for that to happen. I think they will continue to ponder new themes,'' he said, referring to the difficulty of communicating with the market when normalizing monetary policy.

Furthermore, at the October meeting, Council Member Ryuzo Miyao said, ``An important lesson to be learned from the Fed's policies is the degree to which transparency should be increased in disseminating information regarding future policies. It is clear that policy committee members were strongly aware of the risks involved in normalizing monetary policy during this period.

There is now a view in the market that the time for a change in the Bank of Japan's policy is approaching, and the focus will now be on how the Bank of Japan will communicate with the market.