Some in BOJ warned pandemic could delay Japan's recovery – July minutes

© Reuters. A man wearing a protective mask walks past the headquarters of Bank of Japan amid the coronavirus disease (COVID-19) outbreak in Tokyo

By Leika Kihara

TOKYO (Reuters) – Some Bank of Japan board members warned a resurgence in the coronavirus pandemic could delay an economic recovery and destabilise its banking system by pushing more companies under, minutes from the bank’s July rate review showed on Thursday.

While they agreed on the need to ramp up stimulus if needed, the BOJ policymakers said the hit to financial institutions’ profits from the pandemic could erode their ability to boost lend, the minutes showed.

“Infection numbers are increasing at a faster pace globally, so we need to be on alert of the possibility of a re-insurgence including in Japan,” a few members were quoted as saying.

“If infection numbers rise again, the timing of an economic recovery will be delayed,” one of them said. The damage from the pandemic, if prolonged, could lead to job losses, hurt household income and cool consumption, another said.

While the BOJ kept policy steady at the July rate review, the remarks underscore a lack of confidence the board members had over their projections of a modest economic recovery.

“Members agreed if financial institutions’ profits remain under pressure for a prolonged period, that could undermine financial intermediation,” the minutes showed.

Under a policy dubbed yield curve control, the BOJ guides short-term interest rates at -0.1% and 10-year bond yields around zero to achieve its elusive 2% inflation target.

It eased policy twice so far this year to cushion the blow from COVID-19 such as by expanding asset buying and creating a lending facility aimed at easing corporate funding strains.

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A few members said the BOJ should continue to focus on easing funding strains, and shift its attention toward efforts to hit its price goal only when the pandemic is contained, the minutes showed.

But others called for more creativity. “We need to look more deeply into what monetary policy should look like in a world where society must co-exist with the pandemic,” one member said.

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