TOKYO -- The Bank of Japan is starting to face skeptics within its own ranks who question the sustainability of massive monetary easing and point to its potential side effects as the economy continues on a recovery path.
Following a two-day policy meeting that ended Jan. 23, BOJ Gov. Haruhiko Kuroda said there was only a "very limited debate" on the possibility of tapering monetary easing. But according to a summary of opinions voiced during the meeting, at least two board members argued for a change to the BOJ's approach.
It "may be necessary to consider what the desirable policy conduct would be going forward," one member said. The discussion also touched on re-examining the bank's interest rate targets and exchange-traded fund purchases -- a more extensive debate than the BOJ chief is willing to admit.
Those arguments stem from Japan's robust economic recovery, now the second-longest since World War II. The economy is also expanding in a record six regions across Japan, according to a January report by the central bank.
"The effects of monetary easing measures will be enhanced" as Japan's medium- to long-term growth potential increases, according to another opinion in the summary, released Wednesday. This is an argument for more sustainable easing measures as well as for a careful examination of policy side effects on the country's banking sector.
But the majority of the BOJ policy board still thinks the 2% inflation target is a ways off, and is not ready to discuss a potential exit. One member, Goushi Kataoka, is even pushing for additional monetary easing. The summary indicates that policy members are spending more time discussing monetary policy, indicating their strong interest in the matter.
With the European Central Bank and the U.S. Federal Reserve both scaling back monetary easing, market players are now turning their focus to the BOJ. "The number of investors who expect the BOJ to adjust its interest rate target or reduce ETF purchases has surged in the last few months," said an official at a brokerage. Even small decreases in the central bank's bond purchases or seemingly innocuous comments by Kuroda have led the yen to strengthen so far this year.
On Wednesday, the BOJ bought 30 billion yen ($274 million) more of Japanese government bonds with three to five years to maturity than it did during its last purchase on Friday, likely to counter the upward pressure on long-term rates. Since a stronger yen could throw cold water on the BOJ's hopes for continued economic recovery and 2% inflation, the bank is extremely nervous about market movements.
Kuroda and his two deputies are all reaching the end of their terms in March and April, so the BOJ could adjust course in the spring or later. But a policy rift may grow even among the six remaining board members, a source familiar with the matter said.