Minutes of the Monetary Policy Meeting

on October 29, 2004
(English translation prepared by the Bank's staff based on the Japanese original)

December 22, 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 Friday, October 29, 2004, from 9:00 a.m. to 1:01 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. I. Ueda, Senior Vice Minister of Finance, Ministry of Finance
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 Department²
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 Board
Mr. K. Murakami, Director, Secretariat of the Policy Board
Mr. T. Kato, Senior Economist, Monetary Affairs Department
Mr. K. Masaki, Senior Economist, Monetary Affairs Department

The minutes of this meeting were approved by the Policy Board at the Monetary Policy Meeting held on December 16 and 17, 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. Momma was present from 9:17 a.m. to 1:01 p.m.

I. Summary of Staff Reports on Economic and Financial Developments³

A. Money Market Operations in the Intermeeting Period

The Bank conducted market operations in accordance with the guideline decided at the previous meeting on October 12 and 13, 2004.⁴ The outstanding balance of current accounts at the Bank moved at the 30-35 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 was generally close to zero percent. Interest rates on term instruments had been steady at low levels.

Japanese stock prices had fallen after the previous meeting, due mainly to the fall in U.S. stock prices. Recently, they were recovering slightly and the Nikkei 225 Stock Average was moving at slightly below 11,000 yen. Long-term interest rates were moving in the range of 1.4-1.5 percent.

The yen had been appreciating slightly against the U.S. dollar, due mainly to concern about the U.S. economic outlook and the U.S. current account deficit. It was recently in the range of 106-108 yen to the dollar.

C. Overseas Economic and Financial Developments

The U.S. economy continued to expand supported by domestic private demand components such as household spending and business fixed investment. However, some indicators, such as new orders for capital goods, suggested a slowdown in the pace of economic expansion. As for prices, the rise in the inflation rate remained modest on the whole, although prices for some products, such as gasoline, were rising.

As for East Asian economies, in China both domestic and external demand continued to expand strongly. The growth in fixed asset investment was accelerating again. In this situation, on October 28, 2004 the People's Bank of China decided, among other measures, to raise the central bank benchmark deposit and lending rates for financial institutions for the first time in nine years. The NIEs and ASEAN economies continued to expand, but the pace of growth in exports and production, particularly of IT-related goods, was slowing recently. Consumer prices were on a rising trend in many East Asian economies, partly reflecting the rise in crude oil prices.

In U.S. and European financial markets, both stock prices and long-term interest rates had been declining slightly on the whole, partly reflecting concern about a possible further slowdown in the pace of economic growth due to the rise in crude oil prices.

Financial markets in many emerging economies were generally weak as concern about a possible deceleration in the pace of economic expansion grew due to high crude oil prices.

D. Economic and Financial Developments in Japan

1. Economic developments

Exports were almost flat in the July-September quarter, increasing by 0.1 percent on a quarter-on-quarter basis, after having increased by 3.2 percent in the April-June quarter. Exports to the United States had been growing steadily until the April-June quarter, but decreased in the July-September quarter, particularly those of automobile-related goods and consumer goods such as digital appliances. Exports to East Asia increased only slightly as in the April-June quarter. Those to the European Union (EU) increased steadily.

The September survey conducted by the Japan Finance Corporation for Small and Medium Enterprise showed that business fixed investment planned for fiscal 2004 by small manufacturers had been revised significantly upward from their initial plans at the beginning of the fiscal year, to an increase of more than 20 percent from the actual investment in the previous fiscal year.

As for the employment and income situation, indicators reflecting labor market conditions such as job offers and the unemployment rate had been on an improving trend. The number of employees was on an uptrend. With regard to the year-on-year change in wages, overtime payments continued to increase. Regular payments were still on a downtrend in terms of the average per person, mainly due to the rise in the proportion of part-time workers, but the rate of decline had been diminishing gradually.

There seemed to be no significant change in the trend of private consumption. This was because indicators of consumer sentiment continued to be on a recovery trend on the whole, although some indicators of private consumption showed slight weakness due partly to adverse weather conditions such as typhoons.

Production in the April-June quarter showed an increase of 2.6 percent quarter on quarter, but declined by 0.8 percent in the July-September quarter. By industry, production of transport equipment and electronic parts was decreasing. Inventories were 1.9 percent higher at the end of September than at the end of June, due partly to an increase in inventories of transport equipment. With regard to electronic parts, inventories were declining as shipments increased in September while production decreased. This movement was in line with expectations that inventories of electronic parts would need to be adjusted only slightly. Nevertheless, developments still required close monitoring since the degree and duration of adjustment would depend on factors such as year-end sales at home and abroad.

On the price front, domestic corporate goods prices continued to rise due to the strengthening of commodity prices at home and abroad and to the improvement in supply and demand conditions. The year-on-year rate of change in consumer prices (excluding fresh food, on a nationwide basis) was 0.0 percent in September since the rise in prices of petroleum-related products such as gasoline, which was due to the rise in crude oil prices in the July-August period, had placed upward pressure on consumer prices. However, consumer prices (excluding fresh food) in the Tokyo metropolitan area declined by 0.3 percent in October year on year, partly because rice prices had started declining on a year-on-year basis. Consumer prices as a whole were therefore projected to continue falling slightly on a year-on-year basis.

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 Bank's Senior Loan Officer Opinion Survey on Bank Lending Practices at Large Japanese Banks showed that demand for loans from firms had improved significantly in the July-September quarter, after deteriorating for two consecutive quarters. The lending attitude of private banks was becoming more accommodative, and that of financial institutions as perceived by firms, including small firms, had also been improving.

With regard to financing through capital markets, the issuing environment for CP and corporate bonds continued to be favorable, as seen in low and stable credit spreads.

The year-on-year growth rate of the monetary base had been at the 4.0-5.0 percent level, with that of banknotes in circulation moving at around 2.0 percent.

3Reports were made based on information available at the time of the meeting.
4The 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 recent state of Japan's economy, members agreed that, although some of the indicators released in the intermeeting period showed slight weakness, it was not necessary to change the basic assessment made at the previous meeting that Japan's economy continued to recover, in view of the following. First, the weakness in the indicators was basically within the expected range based on the deceleration in the pace of growth of overseas economies. And second, it was partly due to temporary factors, for example, the adverse weather conditions such as typhoons. Members confirmed that it was still necessary to examine developments in the economy carefully, including the effects of the recent typhoons and earthquakes, as there were some uncertainties in the recent economic situation.

Members agreed that there was no need to change the assessment made at the previous meeting that overseas economies overall, while decelerating from their high growth so far toward a more sustainable rate of growth, would continue to expand steadily, given that only a small number of economic indicators had been released in the intermeeting period.

Many members expressed the view that the U.S. economy continued to expand, although at a slower pace, supported mainly by household spending and business fixed investment. One member added that, although accelerated depreciation of capital investment was scheduled to expire at the end of 2004, the new tax code might help to sustain the expansion of business fixed investment in 2005. A few members said that, in view of the fact that consumer confidence was declining slightly due partly to the rise in gasoline prices, developments in private consumption, including year-end sales, would be one important factor for the U.S. economic outlook. A few other members said that the effects of the recent depreciating trend of the U.S. dollar on the U.S. economy should be monitored carefully.

With regard to East Asian economies, some members expressed the view that the pace of growth of economies such as those of South Korea and Taiwan had decelerated somewhat due to a slowdown in the growth of exports and production of IT-related goods, but in China both domestic and external demand continued its high growth. A few members noted the possibility of another increase in fixed asset investment in China, and said that they would examine the effects on the economy of, for example, the raising of the central bank benchmark deposit and lending rates by the People's Bank of China.

Many members said that, although a slowdown in the growth of Japan's exports was confirmed again in the recently released economic indicators, this slowdown was caused by the deceleration in the pace of growth of overseas economies and could be considered as basically within the expected range. One member said that the fact that suppliers of materials-related goods for which demand was strong were giving priority to supplying domestic firms over overseas markets was also contributing to the slowdown in the growth of exports.

With regard to domestic demand, a few members said that, with corporate profits improving, business fixed investment continued to increase, spreading to a wider range of industries and firms of various sizes. One member said, however, that it was necessary to pay attention to developments in corporate profits, as many firms were taking a cautious stance on future business conditions due to high prices of crude oil and materials and the appreciation of the yen.

With regard to private consumption, some members said that the weakness seen in some indicators was mainly due to the adverse weather conditions, consumer sentiment was firm, and household income had stopped declining. These members expressed the view that the trend of private consumption, which continued to show some positive movements, therefore remained unchanged. Some members added that it was necessary to monitor carefully how the adverse weather conditions and earthquakes affected consumer sentiment.

With regard to the employment and income situation, members concurred that household income had stopped declining, as the number of employees was on an uptrend and wages had almost stopped falling, with a continuing improvement in various indicators reflecting labor market conditions such as job offers and the unemployment rate. One member said that, in addition to the increase in the number of employees, regular payments in terms of the average per person might start increasing in the near future, as the pace of increase in the proportion of part-time workers had been slowing. Another member expressed the view that a rise in household income was still some way off, as firms continued to restrain labor costs.

Members discussed the 0.8 percent quarter-on-quarter fall in industrial production in the July-September quarter. Many members noted that this fall seemed to be partly due to temporary factors such as typhoons, and industrial production was projected to increase by 1.6 percent in the October-December quarter. Moreover, these members expressed the view that the fall in the July-September quarter was a development basically in line with the slowdown in the pace of growth of overseas economies and in IT-related demand. Members thus generally agreed that, although its pace of increase was slowing slightly, production remained on a rising trend.

Members agreed that there was no significant change in the recent trend of prices.

Many members said that domestic corporate goods prices had been rising due to the strengthening of commodity prices at home and abroad, particularly crude oil prices, and to the improvement in supply and demand conditions, and that this situation was likely to continue for the time being. One member commented that domestic corporate goods prices were likely to continue rising for some time, given that the capacity utilization rate of many materials-related industries was close to the maximum level.

Members concurred that consumer prices would remain on a slight downtrend. This was because, although the year-on-year rate of change in consumer prices (excluding fresh food, on a nationwide basis) was 0.0 percent in September owing to the rise in prices of petroleum-related products such as gasoline, consumer prices remained unlikely to rise due to the increase in productivity and to firms' continuing to restrain their labor costs, and also because rice prices were projected to start declining from October on a year-on-year basis. One member expressed the view that the yen's slight appreciation against the U.S. dollar was also contributing to the slight decline in consumer prices.

Many members raised the effects of high crude oil prices, developments in IT-related demand, and the effects of the typhoons and earthquakes as points that warranted attention in assessing domestic as well as overseas economic activity and prices.

Some members said that the direct impact of high crude oil prices on Japan's economy was likely to be relatively small. This was because the prices of medium and heavy crude oil, which accounted for the majority of the crude oil imported by Japan, had remained at a relatively low level and because Japan's energy efficiency was high. These members continued that attention should be paid to the indirect impact from a possible deceleration in the growth of overseas economies due to, for example, a decline in real purchasing power in countries that consumed a large amount of energy. One member said that attention should be paid to the fact that the soaring crude oil prices would produce inflationary pressure on overall prices, and would at the same time place downward pressure on the economy, and added that the effects of the latter might be considered greater particularly by participants in financial markets at home and abroad. A different member expressed the view that the soaring crude oil prices had reflected the heightened demand in response to the economic expansion worldwide, and conversely, they would eventually decline if they caused a slight deceleration in the pace of expansion of the world economy.

With regard to IT-related demand, members referred to the fact that IT-related industries in Japan had started adjustments in production and inventories in view of the slowdown in global demand for IT-related goods. Many members said that adjustments in mining and manufacturing industries as a whole were not expected to be significant for the following reasons. First, the probability that IT-related industries would undergo large adjustments was small, partly because inventory adjustments had started at an earlier stage. And second, inventories were more or less flat across mining and manufacturing industries, with those in the materials industry declining. Some members commented that it had become more likely that inventories in IT-related industries would need to be adjusted only slightly as inventories of electronic parts for September had declined as a result of a reduction in production and an increase in shipments, and financial results of IT-related firms at home and abroad were generally good and their stock prices were firm.

A few members said that possible effects of the adverse weather conditions and earthquakes on economic activity and prices and their extent would have to be monitored closely. This was because their effects on economic activity, particularly production, public investment, and construction demand, could be both positive and negative. As for the effects on prices, prices of vegetables, for example, had already started to rise and from October they might affect rice prices.

B. Financial Developments

Some members said that the money market remained stable. One member commented on the fact that interest rates on funds maturing beyond the fiscal year-end, when blanket deposit insurance would be fully removed, were declining. The member said that some market participants considered this decline to be an indication of decreasing anxieties about the financial system, and that it could be due to the possibility that market participants' expected duration of the quantitative easing policy had become somewhat longer.

With regard to recent developments in financial markets, one member said that long-term interest rates had been stable on the whole, while stock prices had been showing some fluctuations, rebounding after a decline that was due mainly to the fall in U.S. stock prices. A different member expressed some concern that stock prices lacked the buoyancy that might be expected given firms' business performance.

As for foreign exchange markets, some members said that the U.S. dollar had been depreciating slightly against the yen recently due mainly to concern about the U.S. current account deficit. These members said that the depreciation had so far been within the range of short-term movements in the markets, and the yen's real effective exchange rate had been stable. However, developments in foreign exchange markets needed to be monitored closely, since even a short-term movement could have various effects on economic activity depending on its extent and direction. One member added that attention should be paid to developments in the U.S. dollar, as it was depreciating also against most major currencies, including the euro and other Asian currencies.

C. Outlook for Economic Activity and Prices

With regard to the outlook for economic activity and prices, members agreed on the assessment that "Japan's economy is expected to continue recovering and gradually move to a sustainable growth path."

As grounds for the above view, many members made the following points: although the pace of growth in the world economy was likely to decelerate somewhat due to the soaring crude oil prices and the slowdown in demand for IT-related goods, the most likely scenario was that the world economy would continue expanding given the strong performance of the U.S. corporate sector and the fast growth of the Chinese economy.

Many members noted that considerable progress had been made in the adjustment of structural elements such as excessive investment, debt, and labor in the corporate sector, and also the fragility of the financial system, all of which had delayed the recovery of Japan's economy. These members added that, given the progress in structural adjustments, a virtuous cycle was expected to continue to operate, with the increase in exports and production leading to an upturn in corporate profits and an expansion of business fixed investment, thereby having a positive effect on households through a recovery in the employment and income situation. A few members raised the following as two of the factors that would support the sustainability of the economic recovery: the growth in business fixed investment had been spreading even to small firms; and the volume of new loans to nonmanufacturers for business fixed investment had been increasing. One member expressed the view that the current economic growth could be sustained for a considerable time even if its pace decelerated due to a few cyclical factors, because it was unlikely to be dampened by domestic factors.

One member said that inventory adjustment of IT-related goods was expected to be small, but its effects on exports, business fixed investment, and production might continue for some time.

With regard to prices, members agreed that domestic corporate goods prices were likely to continue rising, partly reflecting the rise in prices of commodities at home and abroad, particularly crude oil, and the tightening of supply-demand conditions for materials, and that in fiscal 2005 the pace of the rise was likely to become moderate.

Members concurred that consumer prices were likely to basically remain less sensitive to economic recovery, due to the increase in productivity and the continuing tendency of firms to restrain labor costs. One member added that another factor behind the disparity between developments in economic activity and prices was the continued stability of people's expectations concerning prices. On this basis, many members said that the most likely scenario for consumer prices was that they would increase slightly on a year-on-year basis in fiscal 2005 reflecting the continued economic recovery and the continued improvement in the output gap. Some members pointed out that the outlook for prices was subject to considerable uncertainty because it depended largely on unpredictable factors, for example, developments in crude oil prices, the future pace of increase in productivity, and how long firms would continue to restrain labor costs.

Many members raised the following as factors that might cause positive or negative deviations of economic activity from the outlook through fiscal 2005: developments in overseas economies, particularly the extent and the duration of the slowdown in U.S. economic growth; the effects of developments in crude oil prices and IT-related demand on the Japanese and overseas economies; and possible weakening of household income and private consumption depending on how severely firms restrained labor costs, in a situation where the household burden of, for example, pension costs was expected to increase.

A few members said that although financial system problems warranted continued monitoring given the upcoming full removal of blanket deposit insurance in April 2005, considerable progress had been made in the resolution of the nonperforming-loan problem. Accordingly, concerns that financial system problems could affect economic activity through corporate finance were receding. Some members added that it was necessary to continue to watch closely for effects on the world economy of any fluctuations in overseas financial and foreign exchange markets caused by, for example, concerns about the "twin deficits" in the United States.

Most members said that the Bank's conduct of monetary policy was expected to attract even more attention among market participants when it released the Outlook for Economic Activity and Prices (hereafter the Outlook Report) with forecasts that the consumer price index (CPI) was expected to increase slightly on a year-on-year basis in fiscal 2005. These members added that therefore, in order to maintain the transparency of monetary policy, the Bank should offer a lucid explanation about its assessment of economic activity and prices as well as the thinking behind its conduct of monetary policy.

In relation to this point, one member suggested that in the second condition in the Bank's commitment to continue the quantitative easing policy, the Bank should shift the level that the year-on-year change in the prospective core CPI should register from "above zero percent" to a specific numerical value higher than zero percent. A different member suggested that the Bank should clarify the second condition or indicate a desirable inflation rate to be achieved in the medium to long term.

This member added that as an indication of the Bank's basic stance on money market operations at the termination of the quantitative easing policy, it might be worth presenting its basic thinking about the pace of reduction in the outstanding balance of current accounts held at the Bank and the use of various money market operations, including outright purchases of Japanese government bonds.

Members discussed what should be said in the Outlook Report to be released after the meeting, including the Bank's basic stance on money market operations.

Many members expressed the opinion that it would be appropriate and sufficiently effective to clearly state as follows in the Outlook Report. First, given the current outlook, it was not certain whether the occasion would arise during fiscal 2005 to change the present monetary policy framework. Second, the Bank would take appropriate measures in a flexible manner in response to developments in economic activity and prices, and if prices remained less sensitive to economic recovery, this would likely give the Bank latitude in conducting monetary policy. And third, the Bank would continue to enhance its communication with market participants so that they would be better able to judge and predict the future conduct of monetary policy, taking into account the risk that market participants' expectations could become unstable in the process of the Bank's shifting away from its unconventional monetary easing policy. Members agreed that these statements would be appropriate for the time being.

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.

One member said that it was necessary to carefully monitor developments in financial markets and the financial system, at least until the point when blanket deposit insurance was removed fully in spring 2005.

In relation to the conduct of monetary policy in the future, a different member said that the Bank would need to consider the following long-term issues: whether some sort of distortion would accumulate in the economy as prices continued to be less sensitive to economic recovery; in what form this distortion might occur; and how the Bank should conduct monetary policy in such a situation.

IV. Remarks by Government Representatives

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

(1) The Bank would present its outlook for economic activity and prices for fiscal 2005 for the first time in the Outlook Report to be released after the meeting. The outlook for consumer prices, in particular, was a focus of market participants' attention in relation to the Bank's commitment to continuing the quantitative easing policy.
(2) In this situation, the government was concerned that if the Bank presented forecasts of the Policy Board members for the year-on-year rate of change in the CPI for fiscal 2005 the median of which was zero percent or higher, the Bank's projection could induce market speculation that the quantitative easing policy would be terminated in the near future, and that financial markets might become unstable. In order to prevent this from happening, the government would like the Bank to explain clearly to market participants that even though the median of the forecasts for the year-on-year rate of change in the CPI for fiscal 2005 in the Outlook Report was zero percent or higher, the conditions for termination of the quantitative easing policy had not yet been fulfilled as deflation still continued at present. Moreover, the government would like the Bank to make clearer its stance of firmly maintaining the quantitative easing policy. The government would also like the Bank to give due consideration to developments in financial markets, and to conduct monetary policy flexibly should there be a risk of financial market instability triggered by the forecasts in the Outlook Report.
(3) As the representative of the Ministry of Finance had said in the previous meetings, the government would like the Bank to deliberate what kind of new measures it could take to maintain market expectations that the accommodative financial environment would continue and to ensure the sustainability of the economic recovery.

The representative from the Cabinet Office made the following remarks.

(1) Japan's economy was recovering at a solid pace. On the other hand, attention should be paid to the effects on both the domestic and overseas economies of developments in crude oil prices and to developments in the world economy, among other factors. With regard to price developments, in a situation where 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, domestic corporate goods prices were rising reflecting the rise in prices of materials such as crude oil. However, the price situation overall could be assessed as being still only halfway to overcoming deflation. The most important task for Japan's economy was therefore to overcome deflation swiftly and achieve sustainable growth led by private demand. To this end, the government had implemented "Basic Policies for Economic and Fiscal Management and Structural Reform 2004" and had been carrying out structural reforms comprehensively and swiftly.
(2) The Bank projected in its Outlook Report that Japan's economy was expected to continue recovering, and there would be a stronger possibility of achieving sustainable economic growth and overcoming deflation. On the other hand, the Bank expressed the view that consumer prices were unlikely to rise for the time being. Under these circumstances, the Bank was determined to firmly maintain the quantitative easing policy. In overcoming deflation, it was essential that the money stock increase in the end, and 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. The government would like the Bank to clearly present a path toward overcoming deflation, as part of further efforts to enhance the transparency of the conduct of monetary policy.

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 Outlook for Economic Activity and Prices

Members discussed the draft of the Outlook for Economic Activity and Prices (consisting of "The Bank's View" and "The Background"), and put "The Bank's View" 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 immediately after the meeting and the whole report on November 1, 2004.