BOJ debated monetary policy implications of coronavirus: July meeting summary

TOKYO (Reuters) – Bank of Japan policymakers debated how the COVID-19 pandemic could reshape monetary policy and its impact on the economy, a summary of their opinions at a July rate review showed, a sign they were bracing for a prolonged battle against the health crisis.

Many in the nine-member board warned any domestic recovery from the devastating economic impact of the pandemic would be modest and could be delayed depending on how long it takes to contain the outbreak, according to the summary released on Monday.

“The BOJ must deepen its understanding on how COVID-19 could reshape monetary policy. It must scrutinise the transmission channel and effect of its policies, given the risk of further declines in prices and growth expectations,” one member was quoted as saying.

“We must take further action promptly as needed, with an eye on whether the existing policy framework is sufficient,” according to another opinion shown in the summary.

Several board members cautioned that any further economic stress would require policymakers to pay close attention on Japan’s banking system and long-term inflation expectations, the summary showed.

The remarks highlight the dilemma the BOJ faces as it struggles to cushion the economic blow from the pandemic with a dwindling policy tool-kit. Years of ultra-low interest rates have also strained commercial banks, stoking fears that further rate cuts could backfire by eroding their ability to lend.

At the July rate review, the BOJ kept monetary policy steady and maintained its view that the economy would gradually recover from the crisis.

The global spread of the coronavirus has forced the BOJ to put off efforts to achieve its elusive 2% inflation target for the time being, and focus on pumping money to cash-strapped firms hit by the outbreak.

The BOJ releases a summary of opinions voiced by its board members about 10 market days after each rate review. It does not disclose the identity of the member who made the comments.

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