Minutes of the Monetary Policy Meeting

on July 12 and 13, 2004
(English translation prepared by the Bank's staff based on the Japanese original)

August 13, 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 Monday, July 12, 2004, from 2:00 p.m. to 3:43 p.m., and on Tuesday, July 13, from 8:59 a.m. to 12:17 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. M. Ishii, Deputy Vice Minister for Policy Planning and Coordination, Ministry of Finance³
Mr. J. Hamano, 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, Director-General, Monetary Affairs Department
Mr. Y. Maehara, Adviser to the Governor, Monetary Affairs Department
Mr. S. Uchida, Senior Economist, Monetary Affairs Department
Mr. H. Yamaoka, Senior Economist, Monetary Affairs Department
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. K. Murakami, Director, Secretariat of the Policy Board
Mr. S. Shimizu, Senior Economist, Monetary Affairs Department
Mr. Y. Saito, Senior Economist, Monetary Affairs Department

The minutes of this meeting were approved by the Policy Board at the Monetary Policy Meeting held on August 9 and 10, 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.
Mr. K. Ishii was present on July 13.
Mr. M. Ishii was present on July 12.

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 June 25, 2004.⁵ The outstanding balance of current accounts at the Bank moved at the 32-35 trillion yen level.

B. Recent Developments in Financial Markets

Against the background of the Bank's provision of ample liquidity, the weighted average of the uncollateralized overnight call rate generally moved in the 0.001-0.002 percent range, except for a couple of days in early July when the rate fell slightly below zero. Interest rates on term instruments had been steady at low levels.

Japanese stock prices had risen toward the end of June reflecting expectations for further economic recovery, but declined in early July due mainly to profit-taking sales and to the fall in U.S. stock prices reflecting weaker-than-expected U.S. employment statistics. The Nikkei 225 Stock Average was recently moving around 11,500 yen.

Long-term interest rates had declined, partly reflecting the lower-than-expected consumer price index (CPI) for May and the fall in stock prices. The yield differentials between Japanese government bonds (JGBs) and corporate bonds in the secondary market continued to be essentially unchanged.

The yen was moving in the range of 108-110 yen against the U.S. dollar. The release of weaker-than-expected U.S. employment statistics was regarded as a reason to sell the dollar against the yen, while the fall in Japanese stock prices led to selling of the yen by market participants adjusting their positions.

C. Overseas Economic and Financial Developments

The U.S. economy continued to show balanced growth. Final demand components such as household spending and business fixed investment had been increasing steadily. Production and corporate profits had been increasing, and the employment situation was on an improving trend. The inflation rate was rising at a moderate pace.

In the euro area, the momentum for economic recovery remained weak. Household spending was sluggish, particularly in Germany, although the corporate sector showed some positive signs in exports and production. The inflation rate in the area stayed at a relatively high level partly reflecting the rise in energy prices.

East Asian economies continued to expand steadily. In China, growth in fixed asset investment was slowing somewhat and recently growth in production was also slowing slightly, due to further measures taken by public authorities to contain overheating of investment. Overall, however, both domestic and external demand continued to expand strongly. The rate of year-on-year increase in consumer prices was accelerating, partly due to the rise in food prices. In most of the NIEs and ASEAN countries, exports and production were on an uptrend. The rate of year-on-year increase in consumer prices was rising at a moderate pace in most of the NIEs and ASEAN countries, reflecting their economic expansion and the rise in crude oil and food prices.

In U.S. and European financial markets, there was a growing market perception, reflecting the results of the Federal Open Market Committee (FOMC) meeting and the release of the U.S. employment statistics for June, that the pace at which the FOMC raised the target for the federal funds rate would not be as fast as previously expected. Against this backdrop, long-term interest rates declined somewhat, and stock prices were declining currently although they remained within the recent range.

In financial markets in emerging economies, the financial environment was improving slightly. In many of these economies, currencies appreciated, stock prices rose, and the yield differentials between their sovereign bonds and U.S. Treasuries narrowed, due to growing market perception that the pace of rises in the federal funds rate in the United States would be moderate. Financial markets, however, remained susceptible to factors peculiar to each economy and could fluctuate considerably.

D. Economic and Financial Developments in Japan

1. Economic developments

Exports continued to increase, reflecting the expansion of overseas economies, particularly those of the United States and East Asia. The monthly average for the April-May period was 1.9 percent higher than that for the January-March quarter, after a substantial increase of 4.1 percent in that quarter from the previous quarter. By region, exports to the United States continued to increase at a moderate pace, while those to East Asia were almost flat. As for exports to China, the growth rate was slowing, possibly because measures taken by public authorities to contain the overheating of the Chinese economy were starting to have some sort of effect on exports, as well as due to a reaction to the upsurge in the previous quarter.

With regard to corporate profits, according to the June Tankan (Short-Term Economic Survey of Enterprises in Japan) current profits were projected to increase considerably in fiscal 2004, as in fiscal 2003. By industry, in the manufacturing sector current profits of both large and small firms were projected to continue double-digit increases, and those of nonmanufacturing firms were also projected to increase, by almost 10 percent overall.

Given these developments, business fixed investment continued to increase. Shipments of capital goods (excluding transport equipment) had been increasing, particularly those of semiconductor fabrication machines and equipment. The monthly average for shipments of capital goods for the April-May period was 3.9 percent higher than that for the January-March quarter, after a quarter-on-quarter increase of 3.4 percent in that quarter. Machinery orders (private demand, excluding shipbuilding and orders from electric power companies), a leading indicator of business fixed investment, surged in the April-May period, particularly those from manufacturing firms, growing by 9.3 percent from the monthly average for the January-March quarter.

In business fixed investment plans for fiscal 2004 in the June Tankan, business fixed investment by large manufacturing firms was projected to be very strong, with an increase of 20 percent from the previous fiscal year, as some of their investment plans were carried over from the previous fiscal year. Small manufacturers' business fixed investment plans for fiscal 2004 were also strong for this time of year. Business fixed investment by small nonmanufacturing firms for fiscal 2004 was projected to decline substantially from the previous fiscal year. However, it was not necessarily weak, considering the double-digit increase in fiscal 2003.

As for the employment and income situation, indicators related to job offers had been on an uptrend. The June Tankan showed that excessiveness in the number of employees as perceived by firms had been subsiding gradually. An uptrend in the number of employees in the Labour Force Survey was gradually becoming clear, and the number of regular employees in the Monthly Labour Survey had started to increase. With regard to wages, the rate of decline in regular payments was basically diminishing gradually, although they were still on a downtrend in terms of the average per person mainly due to the rise in the proportion of part-time workers. A drop in regular payments in May was considered to be attributable to the fact that there were more holidays in May this year compared to last year.

Private consumption continued to show some positive movements overall: the index of living expenditure rose, with the average for the April-May period up sharply from that for the January-March quarter, according to the Family Income and Expenditure Survey, although individual sales indicators were mixed. Indicators for consumer sentiment continued to be on a recovery trend.

Reflecting these developments, the pace of increase in production accelerated again. The monthly average of production in the April-May period increased by 2.8 percent from that in the January-March quarter, after the rate of increase had slowed to 0.5 percent in that quarter from the previous quarter. Inventories had been nearly flat as a whole, although the intended accumulation of inventories for electronic parts had become clear. For these products, adjustment pressures on inventories were unlikely to intensify immediately, judging from strong domestic and external demand. However, developments in supply-demand conditions required close monitoring for the time being since sales of some products, for example, cellular phones, had fallen below the forecasts.

On the price front, domestic corporate goods prices had been rising. By product, prices of petroleum products and those of iron and steel-related products rose markedly, reflecting the strengthening of commodity prices at home and abroad. For these types of products, the rise in materials prices continued to be increasingly passed on to intermediate goods prices, assisted by the improvement in supply and demand conditions. As for final goods, the impact of the rise in materials prices had been limited, except for some goods such as gasoline. However, the rate of decline in prices of capital goods had been diminishing compared with some time ago, as demand for these goods, for example, for export and business fixed investment, had been recovering.

The year-on-year rate of decline in consumer prices (excluding fresh food, on a nationwide basis) expanded marginally in May from April, mainly due to a larger decline in imputed house rent. Consumer prices were projected to basically continue falling slightly on a year-on-year basis, although the rise in crude oil prices was expected to exert upward pressure to some extent.

2. Financial environment

While firms continued to reduce their debts, the pace of decline in credit demand in the private sector was becoming somewhat moderate, since corporate activity had been recovering, as seen in the ongoing increase in business fixed investment. The lending attitude of private banks was becoming more accommodative, and the lending attitude of financial institutions as perceived by firms had improved more noticeably. In the diffusion index for small firms' perception of financial institutions' lending attitude in the June Tankan, the proportion of firms perceiving it as "accommodative" had exceeded that perceiving it as "severe." The year-on-year rate of decline in lending by private banks had basically been diminishing, and was 1.3 percent for June.

With regard to financing through capital markets, the issuing environment for CP and corporate bonds remained favorable, as credit spreads were stable at low levels. The amount outstanding of CP and corporate bonds issued had been moving above the previous year's level.

The year-on-year growth rate of the monetary base decreased somewhat, and was currently at the 4.0-5.0 percent level. That of the money stock (M2+CDs) was 1.8 percent in June.

The number of corporate bankruptcies continued its downtrend, partly reflecting the improvement in the financial positions of firms.

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 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. 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 it continued to recover, with the increases in production and corporate profits exerting positive effects on employment, referring to economic indicators released since the previous meeting. First, according to the June Tankan, improvements in business sentiment were seen in a broad range of industries, and business fixed investment was strong. Second, the improvement in the employment situation was becoming more marked. And third, private consumption continued to show positive movements. Regarding the outlook, members agreed that Japan's economy was expected to continue to recover, gathering stronger momentum. A few members, however, expressed the view that disparities between firms by industry, size, and region had not yet diminished, pointing out that the diffusion index for business conditions in the June Tankan showed that large disparities still remained between large manufacturing firms and small firms or nonmanufacturing firms.

Many members said that overseas economies were expanding steadily, particularly the economies of the United States and China.

Members agreed that the U.S. economy continued to show balanced growth. Some members, however, said that it seemed to have started to show signs of a slight slowdown, citing the following points. First, some of the recent economic indicators, such as the number of employees, new orders for nondefense capital goods, and sales at chain stores, were weaker than market expectations. Second, the private-sector forecast for economic growth in the Blue Chip Economic Indicators had been revised downward. And third, stock prices were relatively weak, particularly those of high-tech related stocks.

As for the outlook, members expressed the view that the U.S. economy would continue on a growth trend, although the pace of growth would slow gradually. Some members, however, raised the following as risk factors for the economy: the possibility that the inflation rate might rise as the decline in unit labor cost was coming to a halt; the pace of rate increases by the Federal Reserve and its effect on the economy; the sustainability of IT-related demand; and the uncertainty stemming from geopolitical risks and the upcoming U.S. presidential election.

With regard to the Chinese economy, members generally agreed that investment activity seemed to have slowed and the risk of the economy overheating was subsiding somewhat, due partly to the effects of measures taken by public authorities so far to contain the overheating of the economy. A few members, however, said that the possibility that further tightening measures might become necessary could not be ruled out as the economic growth might not slow sufficiently, given that commodity prices, such as those of steel and nonferrous metals, and shipping charges were rising again, and that the growth in production and fixed asset investment remained high. Regarding this point, some members said that it was difficult to predict how effective measures taken to contain the overheating of the economy would be, because such measures were not macroeconomic policies, but administrative guidance issued in individual cases, and that the effects of the measures would differ from region to region. Therefore, it was necessary to continue to examine carefully whether such adjustments were progressing smoothly.

With regard to domestic demand, many members expressed the view that business fixed investment on the whole was stronger than expected, based on the fact that business fixed investment plans of large manufacturing firms for fiscal 2004 showed a substantial increase of about 20 percent from the previous fiscal year, and those of small firms were relatively strong, according to the June Tankan. One member said that this was because firms were starting to make positive business fixed investment based on new business models, as corporate restructuring had come to a halt. In addition, they were more willing to invest, as shipments of IT-related goods were strong worldwide, and electronic parts were becoming scarce with the summer Olympic Games coming up. A different member said that the fact that scrapping and selling of equipment were underway and its vintage was declining at manufacturing firms was contributing to strengthening the sustainability of the increase in business fixed investment. Another member expressed the view that business fixed investment of small nonmanufacturing firms was relatively weak compared to that of manufacturing firms.

Many members said that business fixed investment would continue to increase steadily.

Given these developments, one member pointed out that the growth rate of production accelerated again in the April-May period, to 2.8 percent from the monthly average production for the January-March quarter, and said that it would continue to increase reflecting the recovery in both domestic and external demand. A different member said that the member was paying attention to developments in the inventories of electrical machinery.

Many members expressed the view that it had become clear that improvements in the corporate sector were having positive effects on the household sector. Indicators related to labor market conditions, such as the number of new job offers, had been on an improving trend, and an uptrend in the number of employees was becoming clear.

Many members said that private consumption continued to show some positive movements, noting that the average of the index of living expenditure for April and May posted high growth of 4.0 percent from the average for the January-March quarter, according to the Family Income and Expenditure Survey. Some of these members commented that strong sales of summer merchandise due to the extremely hot weather were a positive development. With regard to the outlook, a few members said that private consumption was projected to recover gradually, as improvement in household income became clear.

With regard to prices, members agreed that while domestic corporate goods prices had been rising, reflecting the rise in international and domestic commodity prices and the improvement in overall supply and demand conditions, consumer prices had basically been declining slightly.

Against this background, members discussed factors behind the fact that consumer prices had not shown any major changes despite the strengthening of the economic recovery. Many members said that the fundamental factors were the fact that productivity was increasing, particularly at manufacturers, and that wages were constrained partly by deregulation of the labor market. One member raised the following as some of the possible factors behind the increase in productivity. First, as there was considerable slack in the economy, productivity was increasing temporarily due to a rise in capacity and labor utilization rates, a typical development seen in an economic recovery phase. Second, the effects of structural reforms that firms had been carrying out in the past few years were starting to appear. And third, total factor productivity (TFP) was increasing in a longer time frame due to technological innovation, especially the progress in IT. A different member said that the fundamental factor behind the increase in productivity could be that, as the economy was undergoing structural changes, firms were changing their business models and selecting for investment only those projects that would achieve high ROE and/or high ROI. Many members including these two members said that, in any case, the sustainability of the increase in productivity would require close monitoring, because it was difficult to determine whether the increase was due to cyclical or to structural factors.

As reasons for the disparity in developments in the economy and prices, a few members raised the decline in the pricing power of firms, particularly in relation to consumer goods, and people's firmly-rooted expectations for a continuation of the price decline, as the deflation had been prolonged.

As for the outlook for consumer prices, members agreed in projecting that consumer prices would basically continue falling slightly. Some members said that given the recent strength in demand, attention should be paid to the possibility that the inflation rate might accelerate at some point in the future. One of these members, however, said that, in the relatively long term, there was a possibility that it would take a considerable time before prices started to rise even when the strong momentum of economic recovery spread to nonmanufacturers, given that there was considerable room for increasing productivity at nonmanufacturers. A different member said that the following should be noted as possible constraints on wages: baby boomers would begin retiring in the near future, and the share of labor in income distribution remained at a high level for small firms.

B. Financial Developments

On the financial front, members agreed that financial markets at home and abroad had generally reacted calmly to the FOMC's decision to raise its target for the federal funds rate, the most notable event during the intermeeting period. Many members, however, expressed the view that financial market developments continued to require careful monitoring because the markets remained nervous, as the course of economic activity and prices and the worldwide low interest rate environment were changing.

With regard to Japanese financial markets, some members said that long-term interest rates had been stable compared with earlier. One member commented that the lower-than-expected consumer prices in May had contributed to the decline in long-term interest rates. A different member referred to the results of a questionnaire conducted by the Japan Association of Corporate Executives (Keizai Doyukai) on firms' attitudes regarding a rise in long-term interest rates. The member said that firms were not rushing to raise funds at fixed interest rates, against the background of their ample cash flow, and that they were calm about a rise in long-term interest rates. A few members commented that developments in long-term interest rates were still somewhat unstable and required close monitoring. In relation to this point, a different member pointed out that market participants were becoming more aware of fiscal discipline as an important issue.

As for stock prices, one member commented on recent developments that, by type of industry, while prices of stocks in major industries, for example the high-tech and banking industries, were declining, those of stocks in materials industries were rising. The member said that this partly reflected the fact that demand in China was strengthening again.

Regarding the foreign exchange market, some members said that the yen had stayed in a narrow range against the U.S. dollar, and the risk that it would fluctuate greatly was decreasing somewhat. A few members, however, said that attention should continue to be paid to the risk of depreciation of the U.S. dollar, given the U.S. current account deficit and geopolitical risks.

One member commented that the environment for corporate financing had been improving on the whole, with the pace of decline in credit demand becoming moderate and the lending attitude of financial institutions becoming more active.

C. Interim Assessment

Given the above assessment of economic activity, prices, and financial developments in Japan, members agreed on the following interim assessment in relation to the outlook for fiscal 2004 presented in the Outlook for Economic Activity and Prices (hereafter the Outlook Report) released in April 2004. First, Japan's economy was expected to deviate above the forecasts. Second, domestic corporate goods prices were expected to deviate above the forecasts. And third, consumer prices, on the other hand, were projected to basically continue a slight decline, broadly in line with the forecasts.

Members agreed that the following continued to be factors that could make the economy deviate either above or below the outlook for fiscal 2004: developments in overseas economies; developments in domestic financial and foreign exchange markets; developments in domestic private demand; and progress in the disposal of nonperforming loans and financial system developments. Some members raised developments in crude oil prices, in addition to developments in the U.S. and Chinese economies, as a factor requiring monitoring recently. One of these members said that developments in crude oil prices should be noted as a risk factor that could cause prices in particular to deviate above the forecasts in the current situation of Japan's strong economic recovery. A few other members said that developments in crude oil prices warranted close attention, as a rise could exert downward pressure on corporate profits and final demand.

III. 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.

Some members expressed the view that market participants were feeling more strongly that there was an abundance of liquidity, as seen in the fact that money market rates were weakening and bid rates on the Bank's funds-supplying operations were declining. A different member added that market speculation that the Bank would change its monetary policy before long had been abating and interest rates on futures had therefore declined compared to some time ago. This member continued that, in a situation where financial markets were seeking a level that was in line with the current economic and price situation, it was important that the Bank indicate clearly that it was determined to firmly maintain the quantitative easing policy. Another member said that people's expectations for a continuation of the decline in prices had subsided as was evident from the results of the Bank's Opinion Survey on the General Public's Mindset and Behavior, and the Bank should therefore firmly maintain the quantitative easing policy in order to bring about further monetary easing effects in this situation.

Some members commented on the importance of explanation to the public of the interim assessment to be released after the meeting. These members said that the assessment that consumer prices were projected to be broadly in line with the forecasts for fiscal 2004 made in April 2004, while the economy was expected to deviate above the forecasts, was difficult to comprehend. Given that the Bank's commitment to maintaining the quantitative easing policy was based on the CPI, the Bank should explain its thinking behind the assessment thoroughly to the public.

Some members commented on the Federal Reserve's communication with market participants relating to the raising of the target for the federal funds rate. These members said that market participants generally accepted the raising of the target calmly because the Federal Reserve's thinking on the conduct of monetary policy had permeated into the markets. They added that its thinking had permeated because the Federal Reserve had been communicating it thoroughly to market participants through FOMC statements and speeches by Federal Reserve officials long before the raising of the target. One of these members said that it was natural for financial markets to fluctuate in response to changes in the economy: in fact, in the period before the raising of the target, interest rates had fluctuated to some extent when economic statistics were released in the United States. This member continued that a central bank's communication should be based on accurate assessment of the economic and financial situation, and therefore in its conduct of monetary policy, the Bank would aim to accurately assess the overall economic situation including prices, and based on this assessment communicate its thinking in an appropriate manner.

IV. Remarks by Government Representatives

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

(1) The Japanese economy continued recovering steadily. However, deflation, albeit moderate, persisted, and the government considered that the role of monetary policy remained vital.
(2) The government would like the Bank to make the interim assessment of forecasts of economic activity and prices in the Outlook Report, to be released after the meeting, with great care, fully taking into consideration the fact that public attention was focused on the Bank's interim assessment, especially its consumer price forecasts.
(3) The Bank had clarified its commitment to continuing the quantitative easing policy and was determined to firmly maintain it. The government would like the Bank to conduct monetary policy flexibly, as prescribed in the current guideline for money market operations, should there be a risk of financial market instability, giving due consideration to developments in the economy and financial markets.
(4) Market speculation about the duration of the accommodative financial environment had not yet been completely dispelled. The government would therefore like the Bank to deliberate what kind of new measures the Bank could take to dispel such market speculation and ensure the sustainability of the economic recovery.

The representative from the Cabinet Office made the following remarks.

(1) The Japanese economy was recovering at a solid pace as improvements in the corporate sector were extending into the household sector. On the other hand, attention should be given to the effects on the economies of global interest rate developments and other factors. The output gap had contracted due to the steady economic recovery, while the growth rate of the money stock was at low levels due partly to sluggish lending by banks. In this situation, domestic corporate goods prices were rising slightly reflecting the rise in materials prices. However, the price situation overall could be assessed as being still only halfway to overcoming deflation.
(2) The most important task for Japan's economy was to overcome deflation swiftly and achieve sustainable growth led by private demand. To this end, the government would pursue early implementation of "Basic Policies for Economic and Fiscal Management and Structural Reform 2004," which stated that the government intended to ensure that deflation was overcome through its policy efforts together with the Bank and focus on consolidating the foundations for new growth. As a result of these efforts, the nominal growth rate in and after fiscal 2006 was projected to be around 2 percent or higher.
(3) The Bank was determined to firmly maintain the quantitative easing policy. In this regard, the government would like the Bank to implement more effective monetary policy, including measures that would lead to more effective provision of liquidity, continuing to communicate closely with the government. Public attention was focused on developments in long-term interest rates as the Japanese economy had been recovering steadily. The government would therefore like the Bank, through deliberations based on its expertise, to make further efforts to enhance the transparency of the conduct of monetary policy by, for example, presenting a path toward overcoming deflation.

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 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).

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.

VI. 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 decided, by unanimous vote, the text of "The Bank's View." It was confirmed that "The Bank's View" would be published on July 13, 2004 and the whole report on July 14, 2004.⁶

6The English version of the whole report was published on July 15, 2004.

VII. Approval of the Minutes of the Monetary Policy Meeting

The Policy Board approved unanimously the minutes of the Monetary Policy Meeting of June 14 and 15, 2004 for release on July 16, 2004.

Attachment
July 13, 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.