Minutes of the Monetary Policy Meeting

on September 17 and 18, 2002
(English translation prepared by the Bank's staff based on the Japanese original)

November 5, 2002
Bank of Japan

A Monetary Policy Meeting of the Bank of Japan Policy Board was held in the Head Office of the Bank of Japan in Tokyo on Tuesday, September 17, 2002, from 2:00 p.m. to 3:51 p.m., and on Wednesday, September 18, from 9:01 a.m. to 1:08 p.m.¹

Policy Board Members Present
Mr. M. Hayami, Chairman, Governor of the Bank of Japan
Mr. S. Fujiwara, Deputy Governor of the Bank of Japan
Mr. Y. Yamaguchi, Deputy Governor of the Bank of Japan
Mr. K. Ueda
Mr. T. Taya
Ms. M. Suda
Mr. S. Nakahara
Mr. H. Haru
Mr. T. Fukuma

Reporting Staff
Mr. S. Nagata, Executive Director
Mr. E. Hirano, Executive Director
Mr. M. Shirakawa, Executive Director
Mr. H. Yamaguchi, Adviser to the Governor, Policy Planning Office
Mr. T. Wada, Associate Director, Policy Planning Office²
Mr. S. Kushida, Chief Manager, Planning Division I, Policy Planning Office
Mr. K. Yamamoto, Director, Financial Markets Department
Mr. H. Hayakawa, Director, Research and Statistics Department
Mr. K. Monma, Senior Manager, Research and Statistics Department
Mr. W. Takahashi, Associate Director, International Department

Secretariat of the Monetary Policy Meeting
Mr. Y. Hashimoto, Director, Secretariat of the Policy Board
Mr. Y. Nakayama, Adviser to the Governor, Secretariat of the Policy Board²
Mr. N. Ichikawa, Chief Manager, Press Division, Secretariat of the Policy Board³
Mr. N. Yoshioka, Chief Manager, Planning Division II, Policy Planning Office⁴
Mr. M. Osawa, Chief Manager, Money and Capital Markets Division, Financial Markets Department⁴
Mr. H. Onobuchi, Manager, Secretariat of the Policy Board
Mr. H. Yamaoka, Senior Economist, Policy Planning Office
Mr. S. Shimizu, Senior Economist, Policy Planning Office

1. The minutes of this meeting were approved by the Policy Board at the Monetary Policy Meeting held on October 30, 2002 as "a document which contains an outline of the discussion at the meeting" stipulated in Article 20, Paragraph 1 of the Bank of Japan Law of 1997. Those present are referred to by their titles at the time of the meeting.
2. Messrs. Taniguchi, Wada, and Nakayama were present on September 18.
3. Messrs. Fujii and Ichikawa were present on September 17.
4. Messrs. Yoshioka and Osawa were present on September 18 from 9:01 a.m. to 9:17 a.m.

I. Summary of Staff Reports on Economic and Financial Developments⁵

A. Money Market Operations in the Intermeeting Period

Market operations in the intermeeting period were conducted in accordance with the guideline decided at the previous meeting on August 8 and 9, 2002.⁶ Although undersubscription occurred frequently in the Bank's funds-supplying operations, the Bank maintained the outstanding balance of current accounts at the Bank of around 15 trillion yen by utilizing various types of operational tools and maturities of operations.

As a result, the weighted average of the uncollateralized overnight call rate was at 0.001-0.002 percent.

1. 5Reports were made based on information available at the time of the meeting.
2. 6The guideline was as follows:
   The Bank of Japan will conduct money market operations, aiming at the outstanding balance of the current accounts at the Bank at around 10 to 15 trillion yen.
   Should there be a risk of financial market instability, such as a surge in liquidity demand, the Bank will provide more liquidity irrespective of the guideline above.

B. Recent Developments in Financial Markets

Market participants were feeling strongly that there was abundant liquidity in the money market given the Bank's continued provision of ample liquidity. This was also partly due to the following factors. Major banks' financing through the money market continued to decline. In addition, banks became less inclined to secure liquidity after it was reported by the media that payment and settlement account deposits would be fully protected. As a result, yields on financing bills (FBs) and treasury bills (TBs) with up to one-year maturity were at 0.001 percent, the lowest possible level, and three-month Euro-yen rates had declined continuously since late August 2002, although they were to mature beyond firms' semiannual book closings. Furthermore, interest rates on borrowings by the Deposit and Insurance Corporation and the Government's Special Account for the Allotment of Local Allocation Tax and Local Transfer Tax as well as CP rates were declining. Financial institutions felt very little concern about the availability of funds for those maturing beyond the end of the first half of fiscal 2002 in September and those maturing beyond the year-end since they had already submitted a sufficient amount of collateral to the Bank.

A gradual decline in interest rates in the bond market was observed as well. Up until mid-August, the Japanese government bond (JGB) market was characterized by a fall in yields on JGBs with short- to medium-term maturity, but thereafter yields on 10-year JGBs also declined gradually. This partly reflected the fact that regional financial institutions were increasing their investments in JGBs, and market participants were becoming more cautious about the economic outlook.

Japanese stock prices fell in response to the worldwide decline in stock prices. Recently, the Nikkei 225 Stock Average was in the range of 9,000-9,500 yen, and also the total value of stocks traded decreased. The tendency for Japanese stock prices to move in tandem with overseas stock prices seemed to be becoming stronger. Despite this decline in the Japanese stock market, the yield differentials between corporate bonds and JGBs in the secondary market were virtually unchanged. However, in the credit default swap market where the major participants were foreign investors, the market's perception of Japanese banks became more cautious as bank stocks declined.

Until recently, the yen had fluctuated without trend reflecting both downward and upward pressures: downward pressure stemming from domestic institutional investors' buying of the U.S. dollar, and upward pressure created by Japanese exporters' selling of the U.S. dollar. Thereafter, the yen depreciated due to selling by foreign investors, and recently it was trading at the 122-123 yen level against the U.S. dollar.

C. Overseas Economic and Financial Developments

The U.S. economy continued to recover moderately although the pace was slowing. However, attention should be paid to downside risks in the future. In the household sector, private consumption remained firm as evident in strong automobile sales. Housing investment remained at high levels reflecting the decline in interest rates. The unemployment rate for August declined slightly from the previous month, but private nonfarm payroll employment decreased by 2,000. In addition, the weekly number of initial claims for unemployment insurance had recently increased to the range of 400,000-500,000. Consumer confidence was deteriorating due to the slow pace of improvement in the employment situation and the fall in U.S. stock prices.

In the corporate sector, overall business fixed investment remained weak although leading indicators maintained an uptrend. The prospect for a recovery in business fixed investment remained unclear given that indexes of business sentiment were deteriorating slightly, as evident in the level of new orders, and corporate profits were declining recently.

In U.S. financial markets, market participants remained cautious about the pace of economic recovery in the future. As a result, long-term interest rates were on a declining trend. Stock prices rose temporarily due to the easing of skepticism about firms' accounting information, but trended downward again. Developments in federal funds rate futures indicated the resurgence of market expectations for a reduction in the federal funds rate target in the rest of 2002, although expectations had waned slightly in late August partly reflecting a recovery in stock prices. Investors' aversion to risk seemed to remain strong in the markets.

In the euro area, the economy had bottomed out due mainly to an increase in exports, and the real GDP growth rate for the April-June quarter increased for the second consecutive quarter. However, the economy was not yet on a stable recovery path since business fixed investment had declined for the sixth consecutive quarter and the increase in private consumption was due mainly to a rebound following past decreases. In addition, Germany's Ifo Business Climate Index showed that confidence in the future business situation was deteriorating.

In NIEs and ASEAN economies, the slowdown in the pace of the increase in IT-related exports was becoming more evident. This had been expected to a certain extent and the effects of developments in the U.S. economy would become more distinct in the future. Reflecting these developments in exports, the level of production was decreasing. On the other hand, domestic demand stayed firm, with private consumption and business fixed investment starting to recover. In South Korea, however, consumer confidence deteriorated due partly to the fall in stock prices. As a result, the pace of increase in private consumption was showing signs of slowing.

Regarding financial markets in emerging economies, the financial environment in Brazil improved slightly after the International Monetary Fund (IMF) decided to extend financial support. However, the financial environment in Argentina and Turkey remained unstable.

D. Economic and Financial Developments in Japan

1. Economic developments

The Bank's assessment that Japan's economy had almost stabilized was supported by the preliminary data for real GDP in the April-June quarter of 2002, which were estimated by a new method. They showed a moderate increase in domestic demand, in addition to the continued increase in external demand from the previous quarter.

Exports continued to increase. The pace of the increase was expected to slow significantly for a short while until around the end of 2002, reflecting the dissipation of the effects of restocking of inventories abroad, mainly in IT-related goods. However, the uptrend in exports as a whole would be maintained, since exports to East Asia, such as intermediate goods and capital goods, were expected to continue to increase.

Reflecting the above developments in exports, the pace of increase of industrial production for the July-September quarter of 2002 was expected to slow compared with the April-June quarter. Industrial production was nevertheless likely to follow a moderate uptrend. In addition, excess inventory stocks in the manufacturing sector overall had been adequately reduced.

The ratio of current profits to sales, an indicator of corporate profits, was showing clear signs of recovery in manufacturing, after having hit bottom in the second half of 2001. Results of private institutes' surveys also suggested that corporate profits were expected to increase in fiscal 2002.

Business fixed investment had still not stopped declining, although the pace had slowed. Among leading indicators, machinery orders had increased for the fourth consecutive month in July, but construction starts decreased in the same month. Given such developments, it would still take some time before business fixed investment started to recover, even though it was likely to stop deteriorating in the near future.

With regard to private consumption, most sales statistics dropped in July. However, this should not be judged as a sudden downturn in the basic trend of consumption, as it was due partly to unfavorable weather conditions. In fact, in August, sales of passenger cars had recovered, and sales at department stores seemed to have improved slightly. However, the employment and income situation remained severe. Firms were still maintaining their stance on reducing personnel expenses, and thus household income continued to decrease noticeably, with a plunge in summer bonuses. Under these circumstances, private consumption was likely to remain weak for some time.

Regarding prices, domestic wholesale prices were weak reflecting the decrease in import prices to date. However, import prices were likely to start rising slightly due to the strengthening of international commodity prices including crude oil prices. Consumer prices were expected to follow a gradual downtrend at a year-on-year rate of slightly less than 1 percent.

2. Financial environment

Funds raised by the private sector continued to decline. The Financial Statements Statistics of Corporations by Industry, Quarterly suggested that firms' financial position surplus increased slightly due to an improvement in cash flow and a decrease in business fixed investment. Thus, firms' demand for external funds was sluggish. Banks' lending continued to decline by 2-3 percent year on year, and the amount outstanding of CP and corporate bonds issued was recently moving at close to the previous year's level. The overall issuance conditions continued to improve, and the share of issuance of CP and corporate bonds with low credit ratings was increasing. In addition, credit spreads at issuance on CP and corporate bonds with high credit ratings were generally stable at low levels.

The year-on-year growth rate of the monetary base increased slightly in August from the previous month. A breakdown showed that the year-on-year growth rate of banknotes, which accounted for a large part of the monetary base, was increasing slightly, whereas that of the outstanding balance of current accounts at the Bank was declining somewhat reflecting the effects of the rise in the operating target for market operations in the same month of the previous year. The year-on-year growth rate of the money stock (M2+CDs) remained around 3.5 percent, and that of broadly-defined liquidity continued to be around 1.5 percent. The shift of funds to safer financial assets within broadly-defined liquidity had peaked out recently.

The average contracted interest rates on new loans and discounts, particularly those with short-term maturity, increased slightly in July. However, more data should be examined before judging whether these developments in lending rates reflected banks' stance of increasing interest rate margins and whether the increase would continue. Financial institutions' lending attitude as perceived by firms continued to be severe, although surveys of firms conducted by private institutes indicated some improvement. The deterioration in the financing situation of firms had come to a halt.

In sum, the financial environment remained easy on the whole despite the recent fall in stock prices.

II. Introduction of Purchase/Sale of Japanese Government Securities (JGSs) with Repurchase Agreements

A. Staff Proposal

With a view to facilitating the Bank's money market operations, it was appropriate for the Bank to introduce a new type of market operation, purchase/sale of JGSs with repurchase agreements, in accordance with changes in methods employed by market participants. The new operation was designed to replace the two existing types of operation for JGSs, namely, purchase/sale of TBs/FBs with repurchase agreements and borrowing of JGBs against cash collateral (JGB repos), and the Bank would thus employ a wide range of eligible JGSs in the operation. Necessary operational procedures would be decided accordingly.

The new type of market operation would be introduced around the middle of November 2002.

B. Members' Discussion and Votes

Members unanimously approved the proposal and decided that the decision should be made public.

III. Summary of Discussions by the Policy Board on Economic and Financial Developments

A. Economic Developments

On the current state of Japan's economy, members concurred as follows. Japan's economy had almost stabilized as a whole with exports and production continuing to increase, and it could be envisaged that the stabilization of the economy would gradually become definite as overseas economies continued their moderate recovery. There was, however, considerable uncertainty regarding some of the factors that would influence the economic outlook, such as developments in the world economy, geopolitical factors, and developments in stock prices. In this situation, it was particularly difficult to forecast developments in the economy after it stopped deteriorating. On this basis, members agreed to maintain the overall economic assessment unchanged from the previous month.

One member expressed the view that economic growth would be limited to around zero percent in the July-September quarter because an increase in exports would be offset by sluggish domestic demand, and that this situation would continue for some time into the future. This member added that prices would not recover much in such a situation.

A few members commented on exports and production that the pace of growth was slowing slightly with the impetus from overseas restocking coming to a halt, and this had been more or less expected. Some members, however, expressed the view that there was considerable uncertainty regarding factors related to exports, such as developments in stock prices worldwide, the outlook for IT-related goods, and geopolitical factors.

Regarding overseas economic developments, many members agreed that the pace of economic recovery in the United States and Europe was decelerating, and there were also signs that some economies in East Asia would slow.

Many members commented on the recent weakness in U.S. stock prices. One of them said that the main cause of the instability of U.S. stock prices was shifting from skepticism about firms' accounting information to uncertainty about the U.S. economic outlook. These members added that the scenario that the U.S. economy would continue to grow moderately in the rest of 2002 or in 2003 remained unchanged, because private consumption, especially automobile sales, and housing investment remained firm. Some members, however, expressed concern that corporate and household sentiment and firms' financing conditions might deteriorate due to the fall in stock prices, and if this deterioration was prolonged, economic activity might stagnate.

One member said that final demand in East Asian economies was generally firm, and exports to these economies were expected to underpin Japan's exports overall. In response to this, a different member expressed the view that the question whether domestic demand in East Asian economies could remain firm even if the U.S. economy decelerated warranted attention.

Some members expressed the view that business fixed investment would stop declining. They pointed out that machinery orders, a leading indicator, had continued to increase in July following the April-June quarter, particularly orders for manufacturing, and thus the downtrend in machinery orders had come to a halt. One of these members said that, therefore, a weak virtuous circle was operating, in the sense that an increase in production was triggering a recovery in corporate profits which in turn was leading to an increase in business fixed investment. A few other members commented, however, that a distinct recovery of business fixed investment could not be expected in the immediate future, partly because business sentiment had become cautious due to uncertainty regarding the world economy and machinery orders from small firms had not recovered.

As for the household sector, a few members commented that most sales indicators dropped in July, but there were some indicators in August suggesting improvement, such as sales of passenger cars. Many members including these members expressed the view, however, that the income situation of households remained severe, as seen in a plunge in summer bonuses, because firms were still maintaining their stance on reducing personnel expenses. One of these members pointed out that a succession of measures could be implemented that would reduce disposable income in the future, such as a reduction in civil servants' salaries, an increase in the medical expenses to be borne by individuals, and a rise in the tax burden due to tax reforms. These members concluded that, given the severity of the income situation, the weakness in private consumption was likely to persist, and thus private consumption could not be expected to become the driving force of economic recovery.

Members also discussed factors posing a risk to the economic outlook. Many members pointed out the uncertainty of the outlook for the world economy, such as developments in the Middle East, crude oil prices, and emerging markets, in addition to those in the U.S. economy. Some of these members added that a global deflationary trend was becoming noticeable. One member commented on Japan's economy that self-sustained recovery of domestic demand could not be expected for the time being, and that the economic outlook depended greatly on developments in exports and hence on the outlook for overseas economies. These members also pointed out unstable movements in the capital markets worldwide as a risk factor. In particular, members held the same view that the fall in Japanese stock prices could affect expenditure by the corporate and household sectors, and moreover, threaten the stability of the financial system, and as a result trigger downside risks to the economy.

One member commented on the GDP data released recently, which were estimated by a new method. This member said that the new GDP series reflected economic developments more accurately than the previous ones, and pointed out that in 2000, when the Bank terminated the zero interest rate policy, the real GDP growth rate had increased in the second half of the year.

B. Financial Developments

Most members pointed out that Japanese stock prices fell in line with the decline in U.S. and European stock prices and were showing unstable developments. One member expressed the view that the rate of decline in Japanese stock prices since the beginning of 2002 had been relatively small compared with that of stock prices in the United States and Europe, but a breakdown by industry showed that financial stocks and real estate stocks were falling markedly, indicating where the problem of Japan's economy lay. Another member said that, despite the moderate improvement in Japan's economy and the recovery of corporate profits, stock prices were falling recently, and this could be a reflection of anxiety about the persisting vulnerability of the structure of Japan's economy. A different member said that unwinding of cross-shareholdings between banks and firms was exerting downward pressure on the stock market.

Members agreed that, in contrast to these developments in the stock market, the money market remained stable and market participants were feeling more strongly than before that there was abundant liquidity in the market. These members emphasized that confidence in the availability of liquidity had spread throughout the market, unlike the situation around February 2002 when liquidity demand had increased. Some members pointed out that, against this background, long-term interest rates were following a downtrend and credit spreads were generally stable. One member cited the following as factors behind these market developments. First, the extent of the effects of monetary easing measures was increasing. This was because the Bank continued to provide ample funds to the money market, even though liquidity demand was decreasing due to an increase in financial institutions' confidence in their funding and the contraction of the gap between the amount of their loans and their deposits. Second, financial institutions' risk-taking capacity had declined further partly because the share of demand deposits in their liabilities had increased, and thus they were investing in JGSs and bonds with high credit ratings.

Many members were concerned about the negative impact the fall in stock prices could have on financial institutions, which held a large amount of stocks, and on the overall financial system. These members emphasized the need for comprehensive measures that would prevent a fall in stock prices from significantly affecting the stability of the financial system. They agreed that developments in stock prices continued to require careful monitoring.

A few members commented on the monetary aggregates that the year-on-year growth rate of the monetary base was expected to decrease further in the near future. These members pointed out that the Bank would therefore have to consider carefully how to explain this in a manner consistent with the fact that the Bank was maintaining quantitative easing and that market participants were feeling more strongly than before that there was abundant liquidity in the market.

IV. Summary of Discussions on Monetary Policy for the Immediate Future

On the monetary policy stance for the immediate future, all members expressed the view that the Bank should continue its decisive monetary easing measures and maintain the current guideline for money market operations. This was due to the following reasons. First, the economy had almost stabilized as a whole. Second, there was a growing sense of abundance of liquidity in the money market, and the anxiety about the availability of funds among market participants had been dispelled. Some members said that it could not be denied that downside risks to the economy were increasing due to unstable developments in Japanese stock prices and their effects on the economy, in addition to the uncertainty about the outlook for overseas economies. These members, however, expressed the view that there was no need to make a downward revision to the Bank's scenario that the stabilization of Japan's economy would become definite. A different member said that the commitment effect in terms of the duration of the Bank's policy could be strengthened further by an announcement of the Bank's view that downside risks to the economy would increase.

On these grounds, one member commented on the Bank's conduct of market operations that it was appropriate to continue aiming at the upper limit of the current target range for the outstanding balance of current accounts at the Bank of "around 10 to 15 trillion yen." Some other members said that the Bank should provide liquidity flexibly in accordance with the contingency clause of the guideline for money market operations if liquidity demand increased in the money market, including cases where there was upward pressure on liquidity demand stemming from developments in the stock market.

Some members commented on whether it was appropriate to increase the Bank's outright purchases of JGBs. One member said that there was no need to increase them at present, because the outstanding balance of current accounts at the Bank had been maintained at around 15 trillion yen, the upper limit of the target range, in spite of the occurrence of undersubscription in the Bank's funds-supplying operations. Some members agreed with this view. One of these members remarked that it should be noted that a further decline in long-term interest rates would not necessarily be beneficial for investment opportunities and risk management of banks and institutional investors. Another member pointed out that an increase in the Bank's outright purchases of JGBs would increase interest rate risk on the Bank's balance sheet. This member continued that it was time for the Bank to comprehensively examine the use of its seigniorage income with a view to employing it in such a way as to contribute to financial system stability.

Members discussed the possibility of introducing a new type of market operation and broadening the range of eligible collateral to be accepted by the Bank. Some members expressed the view that, at present, there was no need to broaden the range of eligible financial assets, such as exchange traded funds, to be employed in the Bank's market operations. These members pointed out that this was because financial institutions were holding a sufficient amount of financial assets such as JGSs and that the Bank did not face any shortage of eligible assets for its funds-supplying operations. A few other members agreed that there was no need to broaden the range of eligible collateral at present, although the issue needed to be examined on a continuous basis, and such examination should include a feasibility study and a review of operational issues. A different member said that, if there should be a case where sufficient funds could not be provided using the current money market operations tools, the Bank should first consider purchasing foreign bonds taking into account various factors.

Members exchanged views on how the Bank as a central bank should act in response to unstable stock prices. One member said that it was neither appropriate nor possible for a central bank to control stock prices by means of monetary policy, given that stock prices were a reflection of market participants' view of the outlook for corporate profits. Other members agreed that it was not appropriate for the Bank to take measures to deliberately influence stock prices for the following reasons. First, the Bank's conduct of monetary policy should be neutral for allocation of resources and market price formation. Second, it was virtually impossible for the Bank to make the massive stock purchases necessary to artificially control prices in a globally linked market. And third, there was a limit to the risk a central bank could take in relation to its balance sheet.

Many members commented on measures concerning the financial system in relation to monetary policy. A few members stressed that, in order to overcome deflation and realize sustainable growth, it was important not only to implement tax reforms and regulatory reforms, but also to achieve a fundamental resolution of the nonperforming-loan problem and stabilize the financial system. A few other members said that it was essential to ensure financial system stability so that the Bank's ample provision of the monetary base would boost the money stock and thus realize strong monetary easing effects. Some members also pointed out that one of the reasons why Japan needed to be more cautious than other countries about the effects of stock price falls on the economy was that Japanese financial institutions held a large amount of stocks and thus the financial system was vulnerable to stock price volatility. These members continued that it was essential to reduce the risk exposure of financial institutions arising from stock price volatility, which in turn would establish a financial environment where they could increase their lending.

With regard to measures to stabilize the financial system, some members advocated that the Bank and the Government should collaborate in taking effective and comprehensive measures. These members said that the Bank should actively discuss how it could contribute to such measures. One member said that, given the very unusual situation of the Japanese financial system, the Bank should, within the limits of what a central bank could do, implement measures to support it even if these measures caused a certain degree of risk to the Bank. A few other members also commented that it was necessary to improve the tax system for securities to promote active participation of individual investors in the stock market.

A few members said that, given that this meeting was attracting considerable attention both at home and abroad, the Bank should carefully explain to the public the factors behind its policy decision-making such as its view of the financial and economic situation, its monetary policy stance, and the importance of improving financial system stability. These members added that the Bank should release a concise public statement explaining these factors and its decisions and the chairman should hold a press conference after the present meeting. Other members agreed with these views.

V. Remarks by Government 1Representatives

The representative from the Ministry of Finance made the following remarks.

(1) Despite the fact that the Bank's provision of ample funds was giving the market confidence about the availability of liquidity, it had not led to deflation being overcome and prices continued to fall. At the meeting of the Council on Economic and Fiscal Policy on September 9, 2002, the importance of the Government and the Bank collaborating in overcoming deflation was stressed again. One of the views expressed at that meeting, based on the discussions to date, was that the Bank should embark on a more aggressive monetary policy. In addition, concerns were expressed on that occasion that, if monetary policy was kept unchanged, the growth rate of the monetary base would fall, and this would be perceived by the public as a weakening by the Bank of its monetary easing stance.

(2) The Government and the Bank should reaffirm the view that overcoming deflation was the highest priority in Japan's economic policy over the next year or two in order to ensure self-sustained economic growth led by private demand. On this basis, the Government would like the Bank to implement effective and drastic monetary policy measures not necessarily based on conventional thinking or frameworks.

The representative from the Cabinet Office made the following remarks.

(1) The Government's assessment was that the Japanese economy was in a severe situation due partly to the fall in stock prices, and thus the economic outlook could not be viewed optimistically. Economic and financial developments would require closer monitoring than in the past.

(2) At the meeting of the Council on Economic and Fiscal Policy on September 9, 2002, members representing the private sector presented an emergency proposal with a view to dealing with pressing issues of the economy including the fall in stock prices, and members discussed measures to overcome deflation. The Government considered it important to advance structural reforms, including financial system reforms and tax reforms, speedily, comprehensively, and in a manner that would gain the public's understanding, based on the "Basic Policies for Economic and Fiscal Policy Management and Structural Reform 2002," which had been approved by the Cabinet. The Government would draw up concrete plans and implement them immediately giving due consideration to financial and economic developments such as stock prices.

(3) The Government and the Bank would cooperate continuously and implement powerful and comprehensive measures in order to overcome deflation. Given the current severe economic situation, further action was necessary to ensure the effectiveness of monetary easing and the stability of the financial system. The Government would therefore like the Bank to continue deliberating on monetary policy measures that were effective in overcoming deflation and implementing them.

VI. Votes

Based on the above discussions, members considered that it was appropriate to maintain the current guideline for money market operations.

To reflect this view, the chairman formulated the following proposal.

The Chairman's Policy Proposal on the Guideline for Market Operations:

1. The guideline for money market operations in the intermeeting period ahead will be as follows.
   The Bank of Japan will conduct money market operations, aiming at the outstanding balance of the current accounts at the Bank at around 10 to 15 trillion yen.
   Should there be a risk of financial market instability, such as a surge in liquidity demand, the Bank will provide more liquidity irrespective of the guideline above.
2. A public statement will be decided separately.
   Votes for the proposal: Mr. M. Hayami, Mr. S. Fujiwara, Mr. Y. Yamaguchi, Mr. K. Ueda, Mr. T. Taya, Ms. M. Suda, Mr. S. Nakahara, Mr. H. Haru, and Mr. T. Fukuma.
   Votes against the proposal: None.

VII. Discussion on the Public Statement

Members discussed the draft of a public statement prepared by the staff regarding the decision of the Policy Board, and put it to the vote. The Board approved unanimously "On Today's Decision at the Monetary Policy Meeting" and decided to release it after the meeting (see attachments 1 and 2).

VIII. Discussion on the Bank's View of Recent Economic and Financial Developments

The Policy Board discussed "The Bank's View" of recent economic and financial developments, and put it to the vote. By unanimous vote, the Board decided to publish "The Bank's View" on September 19, 2002 in the Monthly Report of Recent Economic and Financial Developments (consisting of "The Bank's View" and "The Background").⁷

1. 7The original full text, in Japanese, of the Monthly Report of Recent Economic and Financial Developments was published on September 19, 2002 together with the English version of "The Bank's View." The English version of "The Background" was published on September 20, 2002.

IX. Approval of the Minutes of the Monetary Policy Meeting

The Policy Board approved unanimously the minutes of the Monetary Policy Meeting of August 8 and 9, 2002 for release on September 24, 2002.

X. Approval of the Scheduled Dates of the Monetary Policy Meetings in October 2002-March 2003

At the end of the meeting, members approved the dates of Monetary Policy Meetings to be held in the period October 2002-March 2003, for immediate release (see Attachment 3).

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Attachment 1

For immediate release

September 18, 2002
Bank of Japan

On Today's Decision at the Monetary Policy Meeting

1. At the Monetary Policy Meeting (MPM) held today, the Bank of Japan decided to keep the guideline for money market operations unchanged (Attachment 2).
2. Japan's economy has almost stabilized as a whole thanks to an export increase and the associated expansion of production. Overall, financial market developments have been quite stable against the background of abundant liquidity provision by the Bank.
3. It should be noted, however, that stock prices in Japan, as in major markets abroad, have been volatile reflecting growing concern over global economic prospects. A stock price decline could affect expenditures by the corporate and household sectors through various channels. Moreover, given the current economic and financial situation, it could threaten the stability of financial markets and the financial system.
4. Despite the currently stable liquidity demand of financial institutions, should there be unstable movements in financial markets, the Bank will always provide more liquidity irrespective of the current account balance target decided by the MPM. Financial institutions that hold current accounts with the Bank have already submitted sufficient amount of collateral.
5. In order to prevent a continuous price decline and establish a basis for the stable and sustainable growth of Japan's economy, the Bank of Japan is determined to continue its utmost efforts as a central bank, including those to ensure financial system stability.

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Attachment 2

For immediate release

September 18, 2002
Bank of Japan

At the Monetary Policy Meeting held today, the Bank of Japan decided, by unanimous vote, to maintain the following guideline for money market operations for the intermeeting period:

The Bank of Japan will conduct money market operations, aiming at the outstanding balance of the current accounts at the Bank at around 10 to 15 trillion yen.

Should there be a risk of financial market instability, such as a surge in liquidity demand, the Bank will provide more liquidity irrespective of the guideline above.

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Attachment 3

For immediate release

September 18, 2002
Bank of Japan

Scheduled Dates of Monetary Policy Meetings in October 2002-March 2003

1. Outlook and Risk Assessment of the Economy and Prices (October 2002) will be published on Wednesday, October 30, 2002.