Tokyo: The Bank of Japan’s key interest rate of 0.1% could be the lowest possible that will still maintain the functioning of the money market, members of the central bank’s policy board said.
But one board members argued that a further rate cut should not be ruled out, minutes of the meeting at which the rate was cut to that level showed on Tuesday.
The minutes of the December 18-19 meeting also showed one member calling on the bank to shift its emphasis to longer-term rates and facilitate corporate financing.
At the meeting, the central bank set its key rate at 0.10%, a cut of 20 basis points, and announced other steps including temporary outright buying of commercial paper to ease an increasingly severe funding squeeze.
Board member Tadao Noda opposed the rate cut, saying it would weaken functioning of the money market and have only a limited impact in stimulating the economy.
The minutes also showed some members saying they expected a rate cut to have more effect on the real economy if it was done together with steps to facilitate corporate financing.
Given that interest rates on term instruments remained at high levels, some board members said the BOJ has the option of taking steps to put downward pressure on those rates, the minutes showed.
The BOJ also kept interest rates it pays on excess reserves at the central bank at 0.10%, but board member Atsushi Mizuno opposed that decision and called for it to be cut to zero percent to support the market’s natural formation of interest rates.
Last Thursday the central bank kept rates on hold at 0.10% and announced steps including purchasing corporate bonds with maturities of up to one year, while warning that Japan faced two years of deflation.