Bank of Japan policymakers agreed at their March meeting that the economy was recovering, although some warned of a sharp weakening of consumer sentiment and an expected slowdown in consumer inflation, minutes of the gathering showed on Monday.
This gloomy assessment underscored a lack of conviction within the central bank on how much its January decision to adopt negative interest rates could help a stagnant economy and accelerate inflation toward its 2 percent target.
“Some members noted that attention should be paid to the fact that indicators of consumer sentiment had shown a somewhat sharp deterioration due to global market turbulence,” the minutes of the March 14-15 meeting showed.
The board members agreed that underyling trend inflation was improving. But some warned that the BOJ’s preferred measurement of consumer inflation, which strips away the effect of fresh food and fuel costs, might start to weaken from “early spring,” the minutes showed.
At the March meeting, the BOJ kept monetary settings unchanged but offered a bleaker view of the economy, as volatile financial markets and sluggish emerging market demand threatened to derail a fragile recovery.
Some of the nine board members warned that the cost of negative interest rates outweighed the benefits, arguing that the move had made the BOJ’s policy difficult to understand and had fueled anxiety among financial institutions.
A Cabinet Office representative at the meeting urged the BOJ to improve communication of its policy to the public, complaining that negative rates were “somewhat technical and difficult to understand”, according to the minutes.
“The government expected the BOJ to … make efforts so that the effects of the policy measure would be fully realized,” the minutes noted the Cabinet Office representative as stating.
At a subsequent meeting in April, the BOJ cut its inflation forecasts but held off on expanding monetary stimulus to spend more time scrutinizing the effect of its January action.