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BoJ minutes: Downward pressure on prices risks shift in deflation mindset

FXStreet (Bali) - The Minutes from the BoJ Oct 31 meeting (QQE2 was announced) have been published, with many members noting that if downward pressure on prices remained, there was risk shift in deflation mindset delayed.

Main points

Accelerating the pace of increase in the monetary base by a 5-4 majority vote. The Bank will conduct money market operations so that the monetary base will increase at an annual pace of about 80 trillion yen (an addition of about 10-20 trillion yen compared with the past). Increasing asset purchases and extending the average remaining maturity of Japanese government bond (JGB) purchases by a 5-4 majority vote

Japan's economy has continued to recover moderately as a trend and is expected to continue growing at a pace above its potential. However, on the price front, somewhat weak developments in demand following the consumption tax hike and a substantial decline in crude oil prices have been exerting downward pressure recently. A temporary weakness in demand has already started to wane, and the decline in crude oil prices will have positive effects on economic activity from a somewhat longer-term perspective and will push up prices. Nevertheless, if the current downward pressure on prices remains, albeit in the short term, there is a risk that conversion of deflationary mindset, which has so far been progressing steadily, might be delayed. To pre-empt manifestation of such risk and to maintain the improving momentum of expectation formation, the Bank judged it appropriate to expand the quantitative and qualitative monetary easing (QQE).

The Bank will continue with the QQE, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. It will examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate.5

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