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Minutes of the Monetary Policy Meeting

on April 8 and 9, 2004
(English translation prepared by the Bank's staff based on the Japanese original)

May 25, 2004
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, April 8, 2004, from 2:00 p.m. to 3:58 p.m., and on Friday, April 9, from 8:59 a.m. to 12:31 p.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. K. Ishii, 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. Y. Maehara, Adviser to the Governor, Policy Planning Office
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. A. Horii, 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 Board4
Mr. K. Murakami, Deputy Director, Secretariat of the Policy Board
Mr. N. Yoshioka, Director, Head of Planning Division II, Policy Planning Office5
Mr. S. Uchida, Senior Economist, Policy Planning Office
Mr. K. Masaki, Senior Economist, Policy Planning Office
Mr. T. Kurihara, Director, Head of Money and Capital Markets Division, Financial Markets Department5

  1. The minutes of this meeting were approved by the Policy Board at the Monetary Policy Meeting held on May 19 and 20, 2004 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. Mr. Ishii was present on April 9.
  3. Mr. Tsuda was present on April 8.
  4. Mr. Takei was present on April 9 from 11:20 a.m. to 12:31 p.m.
  5. Messrs. Yoshioka and Kurihara were present on April 9 from 8:59 a.m. to 9:47 a.m.

I. Summary of Staff Reports on Economic and Financial Developments6

A. Money Market Operations in the Intermeeting Period

The Bank conducted market operations in accordance with the guideline decided at the previous meeting on March 15 and 16, 2004.7 On March 31, the day of the fiscal year-end book closings, demand for liquidity increased, and in order to secure market stability the Bank provided ample funds exceeding the upper limit of the target range for the outstanding balance of current accounts at the Bank. In the intermeeting period, the outstanding balance moved at around the 31-35 trillion yen level, except on March 31 when it rose to the 36.4 trillion yen level.

As a result of the market operations, the weighted average of the uncollateralized overnight call rate was generally 0.001 percent, except on March 31 when it was 0.005 percent.

B. Recent Developments in Financial Markets

Money market rates remained stable at low levels, including on March 31, against the background of the Bank's provision of ample liquidity.

Japanese stock prices rose significantly reflecting stronger expectations for economic recovery. The Nikkei 225 Stock Average was currently in the range of 12,000-13,000 yen, the highest level in two years and eight months. Long-term interest rates had been rising in response to the firmness in stock prices, exceeding 1.5 percent at one point, but they were recently in the range of 1.45-1.50 percent. The yield differentials between Japanese government bonds and corporate bonds remained essentially unchanged.

The yen had temporarily appreciated to the 103-104 yen level against the U.S. dollar due to speculation that the Japanese authority's stance on foreign exchange intervention had eased, in addition to foreign investors' ongoing purchasing of Japanese stocks. It was, however, at the 105-106 yen level recently.

C. Overseas Economic and Financial Developments

The U.S. economy was showing steady and balanced recovery. Private consumption was on a moderate upward trend, and housing investment remained at a high level. The recovery in firms' activities was spreading with orders in the manufacturing sector and business fixed investment on an uptrend and production increasing moderately. The improvement in the employment situation was becoming clearer.

In the euro area, corporate activity was in general recovering at a moderate pace, with business fixed investment bottoming out, albeit with some fluctuations, and production recovering, particularly in capital goods. However, household spending remained sluggish, partly constrained by structural problems, and the momentum for economic recovery was still weak. The economy in the United Kingdom was showing steady growth.

Economic recovery remained strong in East Asian economies. In China, both domestic and external demand continued to be robust. In most of the NIEs and ASEAN countries, exports and production were on an upward trend, especially in IT-related goods.

In U.S. and European financial markets, stock prices had weakened partly due to a heightening of geopolitical risks, but were rising recently reflecting expectations for improvement in business performance and the release of the U.S. employment statistics for March that were considerably stronger than market expectations. Long-term interest rates had remained virtually level, but were rising recently reflecting the employment statistics in the United States.

In financial markets in many emerging economies, stock prices were at high levels and the yield differentials between their sovereign bonds and U.S. Treasuries were stable at low levels.

D. Economic and Financial Developments in Japan

1. Economic developments

Exports had recently increased substantially. They exhibited a considerable increase in the October-December quarter of 2003 reflecting the recovery in overseas economies, and they continued to grow substantially in the January-February period of 2004, by 4.0 percent from the average of the October-December quarter, due particularly to exports to China, the ASEAN countries, and the European Union (EU). It should be noted, however, that the high growth was partly attributable to temporary factors, such as the lowering of tariffs by China at the beginning of 2004 and an increase in spot exports to the ASEAN countries.

With regard to developments in the corporate sector, corporate profits were projected to continue increasing in fiscal 2004 after a considerable increase in fiscal 2003, according to the March Tankan (Short-Term Economic Survey of Enterprises in Japan). Corporate profits of manufacturers and large nonmanufacturers had been increasing steadily, and those of small nonmanufacturers were expected to improve in fiscal 2004. Under these circumstances, business sentiment was improving relatively clearly overall, regardless of the type of industry and size of firm, and movements toward economic recovery were steadily spreading to a wider range of firms.

In this situation, business fixed investment continued its path of recovery. Shipments of capital goods (excluding transport equipment) continued to increase substantially in the January-February period of 2004 as in the October-December quarter of 2003, particularly those of semiconductor fabrication machines and equipment and computer-related goods. Business fixed investment plans for fiscal 2004 reported in the March Tankan indicated that manufacturers' plans started out relatively strong including those of small firms, while nonmanufacturers' investment stance was cautious at present.

With regard to the employment situation, job offers continued to improve reflecting the labor market conditions. The number of employees in the Labour Force Survey had been slightly above the previous year's level. The rate of year-on-year decline in the number of regular employees in the Monthly Labour Survey had been diminishing. The unemployment rate was on a gradual downtrend, although it still remained high. As for wages and salaries, however, clear signs of a halt in the decline in household income had not yet been confirmed.

Private consumption was showing some positive movements, according to various sales indicators.

Reflecting the above developments in demand, production continued to increase substantially in January, after the large quarter-on-quarter increase of 3.7 percent in the October-December quarter of 2003. The average increase for the January-February period of 2004 slowed to 1.2 percent from that for the October-December quarter of 2003 due to the substantial decline in February.

With regard to prices, international commodity prices continued to rise sharply overall. As a result, import prices were increasing. Domestic commodity prices also continued to rise, particularly for steel products.

Domestic corporate goods prices had been rising compared to the levels of three months earlier reflecting the strengthening of overseas and domestic commodity prices. The year-on-year rate of change in consumer prices (excluding fresh food) had been close to zero percent, while temporary factors such as the rise in rice prices had exerted upward pressure.

2. Financial environment

The pace of decline in credit demand in the private sector was becoming somewhat moderate as a trend, since corporate activity had started to recover, as seen in the increase in business fixed investment, while firms continued to reduce their debts. The lending attitude of private banks continued to be slightly more accommodative on the whole, although they remained cautious about extending loans to firms with high credit risks. The lending attitude of financial institutions as perceived by firms and the financial positions of firms continued to improve.

The issuing environment for CP and corporate bonds was favorable on the whole. Issuance rates and credit spreads were stable at low levels, and the amount outstanding of CP and corporate bonds issued continued to be above the previous year's level.

The growth rate of banknotes in circulation was on a downtrend, due mainly to decreasing anxieties about the financial system, and was recently in the 1.5-2.0 percent range. The year-on-year growth rate of the monetary base was around 10 percent. The year-on-year growth rate of the money stock (M2+CDs) continued to move at the 1.0-2.0 percent level.

  1. 6Reports were made based on information available at the time of the meeting.
  2. 7The 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 30 to 35 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. Establishment of Principal Terms and Conditions for the Sale of Japanese Government Securities with Repurchase Agreements to Provide the Markets with a Secondary Source of Japanese Government Securities

A. Staff Proposal

Based on the instructions given by the chairman at the Monetary Policy Meeting on February 26, 2004, the staff had studied the introduction of a facility that would provide the markets with Japanese government securities (JGSs) held by the Bank as a temporary and secondary source from the perspective of enhancing liquidity and maintaining the smooth functioning of JGS markets. As an outline of the structure of the facility had been prepared, the staff proposed that the Bank adopt Principal Terms and Conditions for the Sale of Japanese Government Securities with Repurchase Agreements to Provide the Markets with a Secondary Source of Japanese Government Securities.

B. Discussion by the Policy Board and Vote

The staff explained that while the Bank's facility to provide the markets with a secondary source of JGSs could contribute to enhancing liquidity and maintaining the smooth functioning of JGS markets, it was important that the facility be designed in such a way that the natural functioning of the market mechanism would not be hindered as a result of excessive intervention in the market. Members discussed the proposal made by the staff mainly from this perspective, and agreed that the facility had been designed with due consideration of this point for the following reasons. First, the Bank would in principle conduct auctions of those issues that more than two counterparties requested it to sell. It would thus be able to confirm the tightness of the market for specific issues of JGSs, and at the same time limit the use of the facility, although not to an extent that would impede its accessibility greatly, in order to prevent counterparties from becoming overly dependent on it. And second, the terms and conditions of the facility allowed the Bank to conduct auctions at its discretion, taking into account the conditions in the financial markets.

Based on the above discussion, members voted unanimously to approve Principal Terms and Conditions for the Sale of Japanese Government Securities with Repurchase Agreements to Provide the Markets with a Secondary Source of Japanese Government Securities and agreed to make the decision public by the attached statement (see Attachment 1).

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

A. Economic Developments

Many members agreed that overseas economies were on a recovery trend overall, particularly the U.S. and East Asian economies, although geopolitical risks were increasing slightly.

With regard to the U.S. economy, some members cited the substantial increase in nonfarm payroll employment in the employment statistics for March, saying that it was becoming increasingly likely that the U.S. economy would move to a balanced and sustainable recovery with economic recovery spreading to employment, where recovery had been somewhat delayed. Some members pointed out, however, that there were structural changes in employment styles and household income remained level, and it was therefore necessary to examine further the employment situation and its effects on the sustainability of the U.S. economic recovery.

Some members referred to the possibility that U.S. private consumption might be negatively affected by the rise in energy prices including gasoline prices and the end of income tax refunds arising from tax cuts.

One member said that there was a risk that the rise in commodity prices would exert downward pressure on corporate profits. A few members expressed the view that the disinflationary trend was diminishing, as deceleration in the year-on-year growth rate of price indexes for, for example, consumer prices and personal consumption expenditures (PCE), was coming to a halt.

Some members said that, as the U.S. economic recovery was becoming clearer, there was a risk that long-term interest rates would rise ahead of economic recovery due to speculation about monetary policy action by the Federal Reserve, and this would have an adverse impact on the economy by, for example, negatively affecting housing investment. One member added that there was a risk that a rise or fluctuations in U.S. interest rates might have a large impact on the world economy, including emerging economies.

Some members commented that the Chinese economy continued to overheat somewhat, and there was a risk that it would not make a soft landing in line with the government's goal of achieving stable growth of around 7 percent. One of these members said that the growth in both banks' lending and the money stock, which had declined temporarily at the end of 2003, had started to rise again recently, and these developments seemed to be a factor behind the recent decision by the People's Bank of China to tighten monetary policy. In response to this, a different member commented that some developments suggested a deceleration of excessive expansion, as seen in a halt in the rise in prices of steel products related to construction.

One member said that economic recovery was observable not only in the United States and East Asia but throughout newly industrializing countries, and such developments could work synergistically to maintain a favorable environment for Japan's exports.

With regard to Japan's economy, members agreed that exports continued to increase substantially, particularly to China, reflecting the recovery trend of overseas economies.

With regard to the corporate sector in Japan, many members said that, as seen in the results of the March Tankan, business sentiment was improving relatively clearly, regardless of the type of industry and size of firm, and movements toward economic recovery were spreading to a wider range of firms, including nonmanufacturers and small firms. A few members, however, expressed the view that improvement in small nonmanufacturers' business sentiment was lagging behind.

Members agreed that recovery in business fixed investment was becoming clear recently, as seen in the developments in shipments of capital goods. Many members commented that business fixed investment plans for fiscal 2004 reported in the March Tankan, particularly those of manufacturers, made a relatively smooth start against the background of improvement in corporate profits overall. A few members, however, pointed out that business fixed investment plans of nonmanufacturers, particularly of small firms, remained cautious, and it was therefore necessary to closely monitor the extent to which the effects of economic recovery were spreading to nonmanufacturers, although movements toward recovery were spreading in the economy.

One member expressed the view that, although corporate profits were recovering, in order to realize sustainable growth it was important for firms to continue with balance-sheet adjustments by, for example, introducing impairment accounting.

With regard to the household sector, many members expressed the view that private consumption was showing some positive movements, particularly in sales of digital appliances, according to various sales indicators. One member said that, although the member basically agreed with this view, it would be necessary to see sales indicators for March onward to assess the state of private consumption, since the supply of consumer goods was in fact recently decreasing somewhat and sales indicators for February might have been boosted by the leap day. A different member expressed the view that recovery in private consumption was evident in other types of data, including the Economy Watchers Survey.

Some members expressed the view that the fall in household income was in the process of coming to a halt, although firms continued to constrain labor costs. These members commented on why private consumption was recently showing some positive movements despite the lack of a marked increase in household income. One member said that the recent firmness in private consumption was due to the increase in the value outstanding of financial assets in real terms resulting from the fall in prices to date, in addition to the overall improvement in the employment situation and expectations for recovery in the income situation, for example, an increase in summer bonuses. A different member said that, in addition to the recovery in the employment situation, which was partly due to the peaking out of firms' restructuring efforts, the rise in stock prices and the halt in the decline in land prices might have been contributing to the recovery in consumer sentiment. A few members including this member said, however, that the outlook for private consumption could not be regarded optimistically, as the effect of the increase in corporate profits on income was as yet unclear and there was strong uncertainty about the future employment and income situation due to, for example, changes in employment styles and the reform of the pension system.

Based on these discussions, members agreed that Japan's economy continued to recover gradually with improvement spreading to various parts of the economy, and domestic demand was becoming firmer. As for the outlook, they concurred that, if the economy continued its current recovery, the momentum would gradually increase, as the rise in production and corporate profits would gradually have a positive impact on the employment and income situation.

Regarding prices, many members expressed the view that although overseas and domestic commodity prices continued to rise and domestic corporate goods prices were also rising, the impact of the rise in commodity prices on final goods prices was currently limited. These members said that this was for the following reasons. First, firms' capacity to absorb rising costs had increased as a result of restraining wage increases and the improvement in productivity due to technological innovation. And second, the increase in firms' costs was offset to some extent by increases in exports and sales volumes, as the rise in materials prices was due to the worldwide economic recovery. One member said that if there was a further rise in materials prices, it would be necessary to pay attention to the possibility that this would squeeze corporate profits and push up final goods prices.

One member pointed out that in the March Tankan the level of excess equipment and employees as perceived by firms had declined to as low as in 1996-97. The member said that attention should be paid to the pace of narrowing of the output gap and to developments in import prices, in addition to the size of the output gap, when assessing future developments in consumer prices.

One member commented on the effects of the latest consumption tax reform on consumer prices. The member said that the effects of obliging vendors to show prices of goods and services including consumption tax were uncertain, but that reduction of the tax exemption threshold for eligible small vendors would, at least theoretically, contribute to pushing up consumer prices, as this would be a cost-raising factor for small firms.

Some members commented on developments in land prices, referring to published land prices data for fiscal 2004. One member said that, although land prices continued to decline on the whole, there were signs of a bottoming out, especially in the Tokyo area, and that land investment for fiscal 2003 had increased significantly, particularly among manufacturing firms, according to the March Tankan. It was therefore necessary to pay attention to developments in asset prices and their effects on the economy. A different member said that deceleration in the fall in asset prices might contribute to subsiding of deflationary concern. A few other members expressed the view that, although there were signs of changes in the trend in land prices, this was unlikely to lead to substantial rises.

B. Financial Developments

Members agreed that the money market was stable in the intermeeting period, as developments in financial markets were calm in March 2004 unlike recent fiscal year-ends.

Many members expressed the view that recent developments in long-term interest rates and stock prices were generally in line with the economic situation and price developments. One member said that, unlike in the summer of 2003 when long-term interest rates were on the rise, market participants seemed not to be particularly concerned about the recent rise in long-term interest rates for the following reasons. First, the Bank's determination to maintain the quantitative easing policy had become widely understood by market participants. And second, financial institutions had prepared to a greater extent against the risk of a rise in interest rates. Some members expressed the view that developments in long-term interest rates required close monitoring, as they tended to rise when an economic recovery was becoming clearer. A few members said that, given that long-term interest rates in Japan were recently moving more closely with those overseas, particularly those in the United States, the effects of a rise in U.S. long-term interest rates on Japanese long-term interest rates would require monitoring.

Regarding developments in foreign exchange markets, a few members expressed the view that there had been a strong expectation among market participants that the U.S. dollar would continue to depreciate due to concerns about the "twin deficits," but recently the depreciating trend was starting to change as their focus was shifting to the performance of the U.S. economy.

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

On the monetary policy stance for the immediate future, members agreed that, based on the assessment of the current economic and financial situation, it was appropriate to maintain the current guideline for money market operations with the target range of "around 30 to 35 trillion yen" for the outstanding balance of current accounts at the Bank.

Members exchanged views on the recent slowdown in the growth rate of banknotes in circulation. Some members cited the following as two main factors behind the slowdown. First, as there had been a prolonged period of extremely low interest rates, the increase in demand for banknotes stemming from the original decline in interest rates was peaking out. And second, anxieties about the financial system had decreased further against the background of progress in disposal of nonperforming loans by financial institutions and the rise in stock prices. One of these members said that in view of these factors, recent developments in banknotes could be regarded as merely reflecting desirable changes in the financial environment. The member also said that when assessing developments in the monetary base, the Bank should continue careful monitoring from a broad perspective given that from the latter half of the 1990s the monetary base and the economy had not always moved in the same direction.

One member said that the Bank should explain clearly that a slowdown in the pace of increase in the monetary base did not imply a tightening of monetary policy. A different member expressed the view that, given that the ratio of the monetary base to nominal GDP was already at a high level, it was now important for the Bank to promote the effective use of the accumulated monetary base by strengthening the transmission mechanism of monetary easing.

One member expressed the view that changes in the velocity of money should be taken into consideration when assessing the growth rate of the monetary base. The member said that demand for banknotes was determined primarily by the following variables: nominal GDP; short-term interest rates; rate of decline in prices; and anxieties about the financial system. On this basis, the member expressed the view that the amount of banknotes in circulation could be expected to decrease considerably even if nominal GDP continued to increase steadily, as deflation would be coming to an end and anxieties about the financial system would be decreasing further.

Some members pointed out the risk, in a situation where the economy would continue to recover, of nominal long-term interest rates rising before there were clear prospects for overcoming deflation, and said that therefore it was important for the Bank to communicate its monetary policy stance to the public in an appropriate manner. One of these members said that in order to stabilize market expectations about the conduct of monetary policy, the Bank should also consider indicating in the near future a rate of inflation that it as the central bank considered desirable, as an anchor for market expectations.

V. Remarks by Government Representatives

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

  1. (1) In the budget for fiscal 2004, which had been approved by the Diet on March 26, 2004, the government allocated the budget prioritizing areas that would contribute to realizing a vigorous society and economy and ensuring the security of the people. The government would implement the budget steadily to ensure economic recovery.
  2. (2) Japan's economy continued recovering steadily. In addition to increases in business fixed investment and exports, private consumption was picking up. Although the fiscal year-end had caused concern in recent years, the end of fiscal 2003 passed calmly. The largest issue that the economy faced remained overcoming the continuing deflation, and the government considered that the role of monetary policy remained vital. The government would like the Bank to deliberate further on the possibility of new measures from the viewpoint of how the Bank could ensure the sustainability of the economic recovery. Regarding the Bank's decision at this meeting to introduce a facility that would provide the markets with JGSs held by the Bank as a secondary source, the government hoped that it would contribute to maintaining the smooth functioning of JGS markets.
  3. (3) The government would like the Bank to conduct monetary policy flexibly, continuing to communicate closely with the government and giving due consideration to developments in the economy and financial markets, including developments in interest rates and exchange rates.

The representative from the Cabinet Office made the following remarks.

  1. (1) Japan's economy continued recovering steadily, supported mainly by business fixed investment. The government considered that it was necessary to continue to monitor closely developments in financial markets, such as changes in exchange rates. As for price developments, although domestic corporate goods prices were rising marginally reflecting the rise in prices of materials, and consumer prices were virtually level, the overall assessment was that moderate deflation was continuing given that the GDP deflator continued to decline and consumer prices had been pushed up by temporary factors.
  2. (2) The most important task for Japan's economy was to overcome deflation swiftly and achieve a self-sustained economic recovery led by domestic demand. To this end, the government would discuss at the meetings of the Council on Economic and Fiscal Policy measures that needed to be further accelerated and expanded, including policy measures indicated in "Reform Work Schedule for Economic Revitalization," which had been released in March 2004. The government planned to incorporate the results of the discussions in "Basic Policies for Economic and Fiscal Policy Management and Structural Reform 2004," which was scheduled to be released around early June.
  3. (3) In order to overcome deflation, while making policy efforts such as acceleration and expansion of structural reforms, it was important to increase the supply of money through structural reforms by the government toward the creation of a more robust financial system and efforts by the Bank to strengthen the transmission mechanism of monetary policy. With regard to the introduction of the securities lending facility to provide the markets with a secondary source of JGSs, which had been discussed at this meeting, the government considered that it would contribute to the stability of financial markets by enhancing liquidity and maintaining the smooth functioning of JGS markets.
  4. (4) The government would like the Bank to conduct money market operations appropriately and flexibly through, for example, the use of operational tools that were more effective, giving due consideration to the recent developments in the monetary base and the money stock, continuing to communicate closely with the government, and taking into account developments in financial markets. The government would also like the Bank to examine the basic framework for the conduct of monetary policy, including price stability issues in the current economic situation, and to implement more effective monetary policy, in order to realize in the medium term the economic situation--deflationary pressure would gradually decline as a result of measures taken by the government with the Bank and deflation would be overcome after an intensive adjustment period--described in "Structural Reform and the Medium-Term Economic and Fiscal Perspectives--FY 2003 Revision."

VI. 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 30 to 35 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 2).

The Bank of Japan will conduct money market operations, aiming at the outstanding balance of current accounts held at the Bank at around 30 to 35 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.

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

Members discussed "The Bank's View" in the Monthly Report of Recent Economic and Financial Developments (consisting of "The Bank's View" and "The Background"), and put it to the vote.

The Policy Board approved, by unanimous vote, "The Bank's View" for publication on April 9, 2004, and decided to publish the whole report on April 12, 2004.8

  1. 8The English version of the whole report was published on April 13, 2004.

VIII. Approval of the Minutes of the Monetary Policy Meetings

The Policy Board approved unanimously the minutes of the Monetary Policy Meetings of February 26, 2004, and March 15 and 16 for release on April 14, 2004.


Attachment 1
April 9, 2004
Bank of Japan

Introduction of the Securities Lending Facility to Provide the Markets with a
Secondary Source of Japanese Government Securities

At the Monetary Policy Meeting held today, the Bank of Japan decided, by unanimous vote, to introduce a facility which provides the markets with Japanese government securities (JGSs) held by the Bank as a temporary and secondary source (the so-called securities lending).1

In government securities markets, liquidity may decline occasionally when market participants experience difficulties in securing specific issues or face uncertainties over their availability. It is a prerequisite for market participants to make every effort to maintain market liquidity, and with the efforts on the part of market participants, this facility as a temporary and secondary source of JGSs to the markets would have positive effects in preventing decline in market liquidity.

The Bank expects this facility to contribute to enhancing liquidity and maintaining the smooth functioning of JGS markets.

  1. For details, see "Establishment of Principal Terms and Conditions for the Sale of Japanese Government Securities with Repurchase Agreements to Provide the Markets with a Secondary Source of Japanese Government Securities."

Attachment 2
April 9, 2004
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:

The Bank of Japan will conduct money market operations, aiming at the outstanding balance of current accounts held at the Bank at around 30 to 35 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.