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BOJ members diverged on yield range tolerance in July meeting, minutes show

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BOJ members diverged on yield range tolerance in July meeting, minutes show

Bank of Japan board members expressed differing opinions on the extent yields should be allowed to move from the central bank target, a summary of opinions at the bank's July 30-31 policy meeting showed.

The central bank's nine-member board decided at the July meeting to maintain the policy rate at negative 0.1% and pledged to guide 10-year Japanese government bond yields at about zero percent, but tweaked the policy to allow greater flexibility in the movement of the 10-year yield. Governor Haruhiko Kuroda had said the BOJ would allow long-term yields to move at double the previous range of around negative 0.1% to 0.1% in a briefing after the release of its recent policy decision, Reuters reported.

However, one BOJ member said "it can be considered appropriate for interest rate control in Japan to allow the yields to move upward and downward by around 0.25%," according to the summary, which does not attribute comments to specific members.

"Controlling the long-term yields in a flexible manner is likely to contribute to maintaining and improving market functioning. Even if interest rates rise somewhat from the current level, its effects on economic activity and prices are likely to be limited," one board member said.

One member also warned that given the current weakness in medium- to long-term inflation expectations, "making policy adjustments that could allow the long-term yields to rise may lead to an increase in real interest rates and thereby contribute to sluggish prices."

Japanese firms surveyed in June expect consumer prices to increase by an annual 1.1% three years from now and 1.1% five years ahead, unchanged from the March survey. Indicating an acceptance that it will take longer to reach its 2% inflation target, the central bank lowered its inflation forecasts for the current fiscal year and the next two after the July meeting.

Board members also called for the bank to pay close attention to the side effects of prolonged monetary easing policy. "Instead of strengthening the framework for persistently continuing with monetary easing, it is necessary to strengthen monetary easing itself so that it will not be persistent," one member said.