BOJ Minutes Show Heated Debate on 1999 Zero Interest Decision

Tokyo, July 31 (Jiji Press)--Bank of Japan policymakers reached
their 1999 decision to start the central bank's first zero interest rate
policy after heated debate, according to transcripts of their meetings
released on Friday.

At a policy board meeting on Feb. 12, 1999, then BOJ Governor
Masaru Hayami called for an additional interest rate cut, saying that rising
interest rates and the yen's appreciation would pose downside risks to the
economy. The view was endorsed by many other members.
Hayami went on to say that he hoped that a cut in short-term
interest rates would make an indirect impact on long-term rates.
The nine-member board decided by a vote of eight to one to
initially guide the unsecured overnight call rate to 0.15 pct and
subsequently induce further declines gradually.
This marked the start of the BOJ's zero interest rate policy, an
unprecedented central bank step at the time.
Board member Eiko Shinotsuka, the only one who voted against the
rate cut, expressed her fear that funds might flow out of Japan due to the
policy step. She said the interests of depositors should be considered.
Another member Susumu Taketomi, though he voted for the action,
said the additional easing might be inconsistent with the BOJ's view that
the pace of economic deterioration was moderating.
Due to uncertainties about repercussions from the easing, different
member Yasuo Goto said that the step would put the BOJ into an
Alice-in-Wonderland situation.
At the time, the Japanese government bond market faced significant
selling pressure after the Finance Ministry decided to terminate JGB
purchases through the now-defunct Trust Fund Bureau.
The key 10-year JGB yield shot up to 2.5 pct in early February 1999
from around 0.7 pct in October 1998.
In addition, the yen soared past 120 to the dollar after plunging
to levels near 150 yen in summer 1998, putting a drag on Japan's exports and
corporate investment.