TOKYO -- The members of the Bank of Japan's policy board were deeply divided over whether additional easing could stir up inflation expectations among consumers and corporations or simply end up hurting the economy, minutes from the Oct. 31 meeting show.
The board kicked off the gathering by looking at economic conditions and changes in price levels, according to minutes released Tuesday. All nine members agreed that plunging crude oil prices, among other factors, were putting downward pressure on consumer prices.
But they were not of one mind on how to respond. BOJ Gov. Haruhiko Kuroda and other advocates of expanded easing pointed out that declining prices could delay the "conversion of the deflationary mindset, which had so far been progressing steadily," the minutes report.
With interest rates already at zero, Kuroda has sought to change the deflationary mindset through large-scale quantitative easing. Their concern was that the recent lull in inflation could again put companies and households in retrenchment mode, reversing the trends of the weak yen and high stock prices.
The pro-easing camp stressed that "the scale of monetary easing should be as large as possible" in order to change people's mindsets and signal the BOJ's "unwavering determination to conquer deflation."
But four board members hailing from the private sector were unconvinced. The previous round of easing, voted for unanimously in the spring of 2013, boosted stocks and other asset prices but had only limited effects on investment and loans. From a business perspective, it was unclear just how another round would boost the economy.
They emphasized that the negative side effects would outweigh the limited benefits. Additional easing would "considerably squeeze liquidity" in the market for Japanese government bonds, they pointed out, and could be seen as a form of deficit financing by the central bank. One member also brought up the risk a weaker yen would pose to smaller businesses.
While supporters won out, they have yet to provide a satisfactory response to the opposing camp's concerns over reflationary policy.
The minutes also reveal that government officials were not privy to the decision in advance. Representatives from the Ministry of Finance and the Cabinet Office requested a 10-minute break right before the voting, to alert ministers Taro Aso and Akira Amari to the possibility of additional easing.
The last time a BOJ policy meeting was suspended at the government's request, back in 2007, the central bank had attempted to raise interest rates over the government's objections.
This time around, the measure passed by just 5 to 4. But support for more easing will likely remain strong as long as Prime Minister Shinzo Abe stays in office.
The terms of two board members, including the anti-easing camp's Yoshihisa Morimoto, will end in June 2015. Their successors must be approved by the Diet, meaning that Abe could appoint individuals more supportive of such measures as long as the ruling bloc retains a majority in the December lower house election.