Minutes of the Monetary Policy Meeting

on August 7 and 8, 2003
(English translation prepared by the Bank's staff based on the Japanese original)

September 18, 2003
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 Thursday, August 7, 2003, from 2:00 p.m. to 3:34 p.m., and on Friday, August 8, from 9:00 a.m. to 11:39 a.m.¹

Policy Board Members Present
Mr. T. Fukui, Chairman, Governor of the Bank of Japan
Mr. T. Muto, Deputy Governor of the Bank of Japan
Mr. K. Iwata, 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

Government Representatives Present
Mr. T. Taniguchi, Senior Vice Minister of Finance, Ministry of Finance²
Mr. H. Tsuda, Deputy Vice Minister for Policy Planning and Coordination, Ministry of Finance³
Mr. Y. Nakajo, Director General for Economic and Fiscal Management, Cabinet Office

Reporting Staff
Mr. E. Hirano, Executive Director (Assistant Governor)
Mr. M. Shirakawa, Executive Director
Mr. A. Yamamoto, Executive Director
Mr. H. Yamaguchi, Adviser to the Governor, Policy Planning Office
Mr. S. Kushida, Deputy Director-General, Policy Planning Office
Mr. H. Nakaso, Director-General, Financial Markets Department
Mr. H. Hayakawa, Director-General, Research and Statistics Department
Mr. K. Momma, Deputy Director-General, Research and Statistics Department
Mr. W. Takahashi, Deputy Director-General, International Department

Secretariat of the Monetary Policy Meeting
Mr. K. Akiyama, Director-General, Secretariat of the Policy Board
Mr. T. Takei, Adviser to the Governor, Secretariat of the Policy Board
Mr. H. Onobuchi, Deputy Director, Secretariat of the Policy Board
Mr. S. Uchida, Senior Economist, Policy Planning Office
Mr. K. Masaki, Senior Economist, Policy Planning Office

The minutes of this meeting were approved by the Policy Board at the Monetary Policy Meeting held on September 11 and 12, 2003 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.
Mr. Taniguchi was present on August 8.
Mr. Tsuda was present on August 7.

I. Summary of Staff Reports on Economic and Financial Developments⁴

A. Money Market Operations in the Intermeeting Period

The Bank conducted market operations in accordance with the guideline decided at the previous meeting on July 14 and 15, 2003.⁵ As a result, the outstanding balance of current accounts at the Bank was at the 28-30 trillion yen level.

As a result of these market operations, the weighted average of the uncollateralized overnight call rate was moving in the 0.001-0.002 percent range.

B. Recent Developments in Financial Markets

Money market rates continued to be stable due to the Bank's provision of ample liquidity. Interest rates on term instruments, such as Euroyen rates, remained generally steady at low levels. Yields on financing bills and treasury bills temporarily rose slightly partly reflecting the increase in long-term interest rates, but were declining recently.

Long-term interest rates rose above 1 percent in early July but declined thereafter partly because banks and institutional investors had purchased Japanese government bonds (JGBs) on dips. Recently, they were moving at around 0.9 percent. The yield differentials between corporate bonds and JGBs in the secondary market generally continued to be at low levels, although those between bank bonds and JGBs widened slightly.

The Nikkei 225 Stock Average fluctuated at around 9,500 yen reflecting concern over the rapid increase in stock prices and the fact that recently stock prices overseas were weakening somewhat. The yen depreciated to around 120 yen against the U.S. dollar due partly to a rise in market participants' expectations for an increase in the pace of recovery of the U.S. economy.

C. Overseas Economic and Financial Developments

The U.S. economy had stayed on a modest recovery trend supported by private consumption. While the recovery in business fixed investment and production continued to lack momentum as a whole and the employment situation continued to deteriorate, household spending remained firm and orders and shipments for some IT-related goods were showing positive developments.

Real GDP increased at an annual rate of 2.4 percent in the April-June quarter of 2003 from the previous quarter, higher than the 1.4 percent in the January-March quarter. A breakdown showed that federal government consumption expenditures rose considerably due to an increase in federal defense spending, and fixed investment started to rise due to a significant increase in investment in IT-related equipment and software.

Regarding developments in household spending, real private consumption remained on a moderate upward trend in June, increasing by 0.1 percent from the previous month. Automobile sales for July were at high levels due partly to the effects of sales promotion measures.

In the corporate sector, while new orders for nondefense capital goods were virtually flat overall, those for some IT-related goods were increasing slightly. Indexes compiled by the Institute for Supply Management (ISM) for the manufacturing and nonmanufacturing sectors were improving. The recovery in production remained weak as a whole. Recently, however, the monthly increase in production was becoming stable.

As for the employment situation, private nonfarm payroll employment for July decreased for the sixth consecutive month, as firms continued to reduce labor costs. The unemployment rate for July improved slightly from the previous month to 6.2 percent, still a high level.

In U.S. financial markets, long-term interest rates had risen significantly due to factors such as the strengthening of optimism about the economic outlook, and concern about a possible increase in the issuance of U.S. Treasuries as the fiscal balance deteriorated. Stock prices were virtually level on the whole.

The slowdown trend of economies in the euro area was becoming more evident since domestic demand components, such as private consumption and business fixed investment, remained sluggish and exports were decreasing.

Exports from the euro area were decreasing mainly due to the appreciation of the euro to date. The Purchasing Managers' Index (PMI), which reflected the state of production, was sluggish. The employment situation continued to deteriorate gradually. However, business sentiment, particularly regarding the outlook, was recovering, due partly to expectations for recovery in overseas economies.

In European financial markets, long-term interest rates had increased in line with the rise in U.S. long-term interest rates. However, the pace of increase was moderate compared with that in the United States, partly reflecting the differential in economic growth rates. Stock prices in Europe were virtually level on the whole, as in the United States.

In East Asian economies, there were signs of improvement due to the containment of severe acute respiratory syndrome (SARS). In China, both domestic and external demand had regained strength after SARS was contained. In Taiwan and Singapore, whose economies were largely dependent on IT-related industries, it was becoming likely that the pace of increase in production would accelerate. In South Korea, however, private consumption was decelerating and the pace of increase in business fixed investment was slowing.

D. Economic and Financial Developments in Japan

1. Economic developments

Public investment was declining, and it was projected to continue declining for the time being.

Real exports were more or less flat with a quarter-on-quarter decline of 0.2 percent in the April-June quarter of 2003 after decreasing marginally by 0.8 percent in the January-March quarter, which had been the first decline in five quarters. By region, exports to the United States increased slightly in the April-June quarter following a large decline in the previous quarter. On the other hand, exports to East Asia, which had been growing steadily until the January-March quarter, declined in the April-June quarter, particularly those to NIEs, due partly to the effects of SARS. By type of goods, exports of IT-related goods, which had decreased significantly in the January-March quarter, increased in the April-June quarter due to a recovery in demand worldwide.

Business fixed investment was on a gradual recovery trend, albeit with some fluctuations. As for the outlook, given that corporate profits were recovering, the uptrend was expected to become established in the period ahead once exports and production resumed an upward trend. However, given various structural factors, the recovery in business fixed investment was likely to remain modest.

With regard to the household sector, the employment and income situation overall remained severe. The number of employees including non-regular employees such as temporary workers had almost stopped falling, and the pace of decline in wages had also been slowing. However, the increase in overtime hours worked and new job offers had come to a halt, and the number of regular employees continued to decline. Household income remained on a gradual downtrend on average.

Given this situation, private consumption continued to be weak. Many sales statistics recorded a relatively large decline in the April-June quarter from the previous quarter due mainly to adverse weather. As for the outlook, private consumption overall was likely to remain weak since the employment and income situation was unlikely to improve markedly.

Production continued to be basically level. It declined by 0.6 percent in the April-June quarter from the previous quarter, after increasing by 0.3 percent in the January-March quarter. As for the outlook, production was expected to eventually resume an uptrend with an increase in exports, but it was likely to be virtually unchanged for the immediate future.

On the price front, import prices and domestic corporate goods prices were declining, mainly reflecting the sharp fall in crude oil prices in early spring. Corporate services prices had been continuing a year-on-year decrease of slightly over 1 percent since April when the rate of decline had expanded, as many firms repriced at the beginning of a new fiscal year. The rate of decline in consumer prices remained virtually unchanged from April, when the rate had diminished due mainly to the rise in medical treatment costs caused by the reform of the medical care insurance system.

2. Financial environment

With regard to credit aggregates, private banks' lending continued to decline by 2.0-3.0 percent on a year-on-year basis. The amount of corporate bonds issued declined considerably in July from the previous month, and the amount outstanding declined from the previous year in July after increasing in June. This seemed to be because many firms held back from issuing corporate bonds amid a rapid rise in long-term interest rates since the middle of June. However, issuance of corporate bonds had been increasing since late July, when long-term interest rates were becoming stable. The yield differentials between CP or corporate bonds and JGBs remained virtually unchanged. The issuing environment of corporate bonds and CP continued to be favorable on the whole, especially for firms with high credit ratings.

In corporate finance, credit demand in the private sector continued to follow a downtrend because business fixed investment remained at low levels and firms were continuously reducing their debts.

Private banks remained cautious in extending loans to firms with high credit risk, while on the other hand they continued to be active in extending loans to blue-chip firms. Reflecting these developments, the lending attitude of financial institutions as perceived by firms was improving somewhat, although small firms continued to perceive it as severe.

The financial position of firms was improving slightly, although that of small firms in particular remained severe.

In sum, money market conditions continued to be extremely easy. The money stock and the monetary base maintained high growth rates relative to that of economic activity. In corporate finance, the fund-raising environment had not changed significantly: the environment for firms, particularly those with high credit risk, remained generally severe. The issuing environment of corporate bonds and CP continued to be favorable, especially for firms with low credit risk. Developments in the financial and capital markets, the behavior of financial institutions, and the situation of corporate finance continued to require close monitoring.

4Reports were made based on information available at the time of the meeting.
5The guideline was as follows:
The Bank of Japan will conduct money market operations, aiming at the outstanding balance of current accounts held at the Bank at around 27 to 30 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 above target.

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

A. Economic Developments

On the state of Japan's economy, members agreed that economic activity remained virtually flat amid a slight abatement of uncertainty about the outlook for the economy.

As for the outlook for Japan's economy, members agreed that the standard scenario remained valid: the uptrend in exports and production would resume gradually with the anticipation that the growth rate of overseas economies would accelerate in the second half of 2003, and this would in turn initiate the momentum for an economic recovery. However, they also concurred that it remained uncertain when exports and production would start to increase and to what extent this increase would lead to a self-sustained recovery in domestic demand, and therefore careful examination was important. Most members said that developments in the U.S. economy, which had a considerable effect on Japan's exports, were also an important factor.

Members agreed that the U.S. economy had stayed on a modest recovery trend supported by private consumption. Many members said that the recovery trend was becoming more evident, as seen in the following developments. First, the growth rate of real GDP in the April-June quarter of 2003 turned out higher than the market expected. Second, demand for IT-related goods was heading for recovery worldwide. And third, business confidence was improving. Some members pointed out that the large-scale tax cuts by the U.S. government could have positive effects on private consumption. One member expressed the view that active policy responses, such as these tax cuts and monetary easing measures by the Federal Reserve, were raising expectations for economic recovery.

Many members said that private nonfarm payroll employment had decreased for the sixth consecutive month, and pointed out as a risk factor concern about the negative effects of the continued deterioration in the overall employment situation on private consumption. Regarding this point, a few members pointed out that there were signs that the deterioration in the employment situation was coming to a halt, as seen in the recent decrease in the number of initial claims for unemployment insurance. One member pointed to the large increase in labor productivity and said that, although an increase in labor productivity and a delayed recovery in the employment situation were two sides of the same coin, increasing labor productivity contributed to achieving sustainable economic growth in the medium to long term.

Many members said that the negative effects of the rise in long-term interest rates on housing investment and private consumption gave cause for concern. One of these members said that the rise might significantly affect private consumption, the firmness of which was supported largely by the increase in refinancing of home mortgage loans at lower interest rates and in home equity loans owing to the rise in home prices.

One member said that business fixed investment lacked momentum for recovery despite the fact that firms' business performance was favorable. This member said that this seemed to be partly because firms were using their cash flow to repay their debts due to balance-sheet adjustment pressures.

Another member said that prices were likely to be under downward pressure at the present level of the unemployment rate of 6.2 percent, based on the generally accepted level of the non-accelerating inflation rate of unemployment (NAIRU)-the rate of unemployment at which inflation was neither accelerating nor decelerating-in the United States of about 5.0-5.4 percent. However, the view on the outlook for price developments differed both within the Federal Reserve and among market participants, and this could be one reason why developments in long-term interest rates had been unstable.

One member said that economic activity in European economies was generally subdued recently, although the perception of the economic situation had improved in Germany.

Some members expressed the view that East Asian economies, particularly China, were resuming a self-sustained growth path due to the containment of SARS.

Against the background of these developments in overseas economies, members agreed that Japan's exports overall were virtually flat, despite slight weakness in the indicators released recently. A few members said that the decrease in exports to East Asia would be temporary as it was attributable to the effects of SARS, and exports to this area were recently recovering. With regard to exports to the United States, one member pointed out that exports of automobile-related goods continued to decline due to inventory adjustment there, but exports of IT-related goods had stopped decreasing, and those of digital home appliances and capital goods had been increasing.

Members agreed that production continued to be basically level as a whole, although it declined in the April-June quarter of 2003 from the previous quarter after increasing for five consecutive quarters. One member said that it was still likely that production would increase in response to an increase in demand as inventory was on a downtrend.

Some members said that business fixed investment was on a gradual recovery trend. One of these members pointed out that orders for industrial machinery, particularly plant equipment, were increasing. In relation to this, a different member pointed out as a favorable factor that there had been progress in addressing structural problems, as seen in the fact that adjustment of excessive debts was coming to a halt, particularly at large manufacturers. However, many nonmanufacturers and small firms were still behind in adjustment, and therefore close monitoring was required of their progress.

Regarding the household sector, a few members said that the decline in the number of employees in the Labour Force Survey and in compensation including bonuses seemed to be coming to a halt, and this could have positive effects on private consumption. These members, however, raised as cause for concern the decrease in real disposable income of households, due to the increase in the social insurance premium, and the negative effects of adverse weather. Future developments in private consumption therefore required close monitoring.

With regard to fiscal policy, one member referred to the recent approval of the guidelines for budget requests for fiscal 2004 by the Cabinet, and commented that it was extremely important that recovery in exports and production lead to self-sustained recovery of domestic private demand because, as in the previous fiscal year, no strong support from the fiscal policy side could be expected in fiscal 2004.

Regarding price developments, one member referred to an estimate of the relationship between the output gap and prices-the non-accelerating inflation level of output (NAILO), which was the level of output at which inflation was neither accelerating nor decelerating. The member expressed the view that the output gap seemed to have contributed to the slowdown in the pace of deflation since the second half of 2002.

B. Financial Developments

Members concurred that money market rates, including interest rates on term instruments, were stable and market participants were feeling more strongly that there were excess funds, especially short-term funds. Some members expressed the view that this was partly because concern about the stability of the financial system had subsided due to factors such as the injection of public funds into Resona Bank. They continued that money market rates could, however, rise if such concern grew at semiannual and fiscal year-end book closings, and thus careful monitoring was required of developments in the market.

Members discussed developments in long-term interest rates in the United States, given that the rise in long-term interest rates in Japan since mid-June had been parallel with those in overseas financial markets, particularly U.S. financial markets.

Many members pointed out that one of the factors behind the rise in U.S. long-term interest rates could be the strengthening of optimism about the outlook for the U.S. economy with the abatement of excessive concern about possible deflation. Some members added that market participants' perception that the Federal Reserve might be optimistic about the economic outlook had also contributed to the rise. Some members further added that concern about a deterioration in the supply-demand balance of U.S. Treasuries, due to expansion of the fiscal deficit, and investors' hedging of the risk posed by price fluctuations of mortgage-backed securities (MBSs) were causing an acceleration in the rise in the rates. One member said that the present level of around 4 percent for U.S. long-term interest rates was consistent with the natural rate of interest, assumed to be around 3 percent, and the expected rate of inflation, assumed to be around 1 percent. A different member said that the rise in long-term interest rates was basically due to improvement in market participants' perception of the U.S. economy, although it was to some extent due to factors such as hedging. Therefore, the rise in long-term interest rates should be understood as following the rise in stock prices, which had already factored in the improvement in the expected return.

One member said that due attention should be paid to the effects of the rise in U.S. long-term interest rates, since not only might it affect economic activity but also its effects might spread globally to a wide range of financial markets. A different member said that in the current situation where fiscal and current account deficits were increasing, there was a risk that concern about possible difficulty in the smooth issuance of U.S. Treasuries would cause long-term interest rates and their volatility to remain high, thereby affecting long-term interest rates in Japan and the yen's exchange rates.

Members generally agreed that long-term interest rates in Japan had stopped rising, but they had not yet become stable. As for the outlook, some members commented that the "Business Improvement Administrative Order" to banks that had received an injection of public funds might exert pressure on these banks to increase gains from trading JGBs, and developments in long-term interest rates could be affected as a result. One member said that the present level of long-term interest rates was consistent with the natural rate of interest and the expected rate of inflation in Japan.

Some members pointed out that stock prices had weakened slightly recently. It was unlikely that stock prices would rise further without new positive factors because market participants' expectations for improvement in corporate profits had already been reflected in the rapid rise in stock prices to date.

Some members commented on risk factors for financial markets. A few members said that attention should be paid to the effects of stock price developments on Japanese banks' financial statements at the time of semiannual book closings at the end of September 2003. A few members said that the risk could not be ruled out that the financial system could become unstable due to the accounting treatment of deferred tax assets and the disposal of nonperforming loans. One member expressed concern that market developments could become unstable due to factors such as speculation about Japanese political developments.

On the basis of the above discussions, members agreed that developments in financial markets, including overseas markets, and their effects continued to require careful monitoring.

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

On the monetary policy stance for the immediate future, members agreed that it was appropriate to maintain the current target range of "around 27 to 30 trillion yen" for the outstanding balance of current accounts at the Bank, given that economic activity remained virtually flat and financial markets were stable overall.

Some members commented on the conduct of money market operations.

One member said that it was important that the Bank increase market participants' awareness of the effects of the Bank's commitment in terms of policy duration by actively utilizing funds-supplying operations with longer maturities, including ones that would mature beyond the year-end or the fiscal year-end, under the current framework of quantitative easing.

Some members commented on the fact that the daily outstanding balance of current accounts held at the Bank moved in a narrow range of around 28-29 trillion yen. One member said that, in the current situation where market participants felt that they had more abundant liquidity than before, it was desirable that the Bank fully utilize the range of the target for the outstanding balance of current accounts held at the Bank according to the money market situation. This member added that a fall in the outstanding balance of current accounts to the lower end of the target range would therefore be acceptable. A different member said that the Bank should as far as possible aim for the upper end of the target range in its money market operations. This member raised the question whether it was appropriate to aim at a particular level within the target range when Japan Post's current account balance had been fluctuating significantly. In summing up these discussions, another member said that it was appropriate for the Bank to conduct money market operations flexibly within the target range taking into account the money market situation, although the Bank should not conduct market operations that might be perceived by market participants as a tightening of monetary policy. Most members agreed with this view.

Some members commented on the effects of the Bank's commitment in terms of policy duration and how the Bank should communicate with market participants. One member said that the recent developments in U.S. long-term interest rates were partly due to statements made by the authorities. The member expressed the view that at times it was necessary that central banks monitor market developments patiently, leaving it to the market to formulate expectations about future developments in the economy. A different member pointed out that the effects of the Bank's commitment in terms of policy duration tended to weaken in a situation such as the present one, where views on the economic outlook varied. The member said that it was therefore important that market participants share the Bank's understanding regarding the effects of its commitment in terms of policy duration. To this end, the Bank should communicate its thinking to market participants appropriately based on accurate analysis of the economic situation.

One member said that there had been insufficient examination of issues related to enhancing the transparency of the conduct of monetary policy and evaluation of the experience so far of the quantitative easing policy, and therefore these should be discussed further for the next issue of "Outlook and Risk Assessment of the Economy and Prices." In relation to this, a different member made remarks on a policy framework for overcoming deflation in the medium to long term. This member expressed the view that, in the conduct of monetary policy, the growth of the monetary base should be assessed taking into account the desirable medium-term rate of inflation and increase in nominal income. It was possible to overcome deflation through such monetary policy together with the current fiscal policy aiming at stabilizing the ratio of the amount outstanding of JGBs to the nominal GDP.

One member pointed out that it was important to discuss the conduct of monetary policy in the medium to long term, but due attention should be paid to the risk that this might be misinterpreted as indicating that the Bank was shifting to tightening monetary policy.

IV. Remarks by Government Representatives

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

(1) The Cabinet approved the guidelines for budget requests for fiscal 2004 on August 1, 2003, in line with the basic idea of remaining on course with expenditure reform as in fiscal 2003, based on policies such as those in "Basic Policies for Economic and Fiscal Policy Management and Structural Reform 2003" (hereafter the Basic Policies 2003), which it had approved in June. Based on the guidelines, the government would review all expenditure items thoroughly, and restrain expenditures as well as ensure prioritization and efficiency in the allocation of budgets for items across administrative boundaries.

(2) There had recently been signs of change in the environment surrounding Japan's economy, as seen in the developments in stock prices and the U.S. economy. However, there was as yet no clear economic recovery and prices continued to fall. Therefore, the government considered that the role of the Bank's conduct of monetary policy continued to be vital.

(3) The government would like the Bank to deliberate on and implement effective monetary easing measures to contribute to stimulating the flow of funds in the economy, including measures that would facilitate the smooth financing of small and medium-sized firms.

(4) The Bank had penalized officials for having left errors in the data for the amount outstanding of CP underwritten by banks uncorrected for a year. It was extremely important that public confidence in the statistical data be maintained, and therefore the government would like the Bank to examine thoroughly all the Bank's statistics and to work toward recovering their credibility, in line with the Governor's statement released on August 7, 2003.

The representative from the Cabinet Office made the following remarks.

(1) In its Monthly Economic Report released on August 5, 2003, the government revised its assessment of the economy upward from the previous month as follows: "The economy remains roughly flat. The environment surrounding the economy, such as the developments of stock prices and the U.S. economy, is showing signs of change." As for short-term prospects, the economy was expected to move toward an incipient recovery if the recovery in the United States and other economies was sustained. However, attention should be paid to the developments in stock prices and long-term interest rates, as well as in overseas economies.

(2) The two most important tasks for Japan's economy were to overcome deflation promptly and to achieve a self-sustained economic recovery led by domestic demand. To this end, the government would continue to promote in an integrated and consistent manner structural reform in the four main fields, namely, the financial system, the tax system, government expenditure, and the regulatory system, based on the Basic Policies 2003. The guidelines for budget requests for fiscal 2004 recently approved by the Cabinet stated that the government would further accelerate reforms of its budget, in terms of both the revenue and expenditure sides, and of both quality and quantity. With regard to improvement of the expenditure side, the government would introduce new measures, namely, "policy packages" and "model projects."

(3) The Basic Policies 2003 stated that the government, with the Bank, would take powerful and comprehensive action to overcome deflation. The government considered that through these efforts deflation would be overcome after an intensive adjustment period, as anticipated in the fiscal 2002 version of "Structural Reform and Medium-Term Economic and Fiscal Perspectives."

(4) The Bank had been examining the basic framework for the conduct of monetary policy since March 2003. The Bank had been drawing up new measures, and in particular, was about to purchase asset-backed securities (ABSs) to strengthen the transmission mechanism of monetary easing. The government hoped that the Bank would continue to conduct monetary policy that was effective in overcoming deflation. In order to overcome deflation in fiscal 2005, the government would like the Bank first of all to take measures to increase the inflation rate, and also to deliberate on what kind of money market operations would be appropriate to use in line with different stages of future developments in prices and interest rates.

V. Votes

Based on the above discussions, members considered that it was appropriate to maintain the current guideline for money market operations with the target for the outstanding balance of current accounts at the Bank at around 27 to 30 trillion yen.

To reflect this view, the chairman formulated the following proposal and put it to the vote.

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

The guideline for money market operations in the intermeeting period ahead will be as follows, and will be made public by the attached statement (see Attachment).

The Bank of Japan will conduct money market operations, aiming at the outstanding balance of current accounts held at the Bank at around 27 to 30 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 above target.

Votes for the proposal: Mr. T. Fukui, Mr. T. Muto, Mr. K. Iwata, Mr. K. Ueda, Mr. T. Taya, Ms. M. Suda, Mr. S. Nakahara, Mr. H. Haru, and Mr. T. Fukuma.
Votes against the proposal: None.

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

Members discussed "The Bank's View" of recent economic and financial developments, and put it to the vote. By unanimous vote, the Policy Board decided to publish "The Bank's View" on August 11, 2003 in the Monthly Report of Recent Economic and Financial Developments (consisting of "The Bank's View" and "The Background"). ⁶

6The original full text, in Japanese, of the Monthly Report of Recent Economic and Financial Developments was published on August 11, 2003 together with the English version of "The Bank's View." The English version of "The Background" was published on August 12, 2003.

VII. Approval of the Minutes of the Monetary Policy Meetings

The Policy Board approved unanimously the minutes of the Monetary Policy Meetings of June 25, 2003, and July 14 and 15 for release on August 13, 2003.

Attachment

For immediate release

August 8, 2003
Bank of Japan

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