Divided Bank of Japan

The monetary easing of the Bank of Japan late October was the second surprise, following the first in April last year, led by Governor Haruhiko Kuroda. Record of its Monetary Policy Meeting, however, revealed that there was a sharp dispute on the additional monetary easing among the policy board members. The policy was made by dismissing the opposition, which was worrying about negative impact on small and middle businesses. The fact was more surprising than the policy.

The additional monetary ease was for increasing quantity of money being supplied to the market from ¥60-70 trillion to ¥80 trillion by buying long-term governmental bond. Kuroda explained that the decision was to prevent the risk of delay of shifting deflation mind. Stock market actually welcomed that bold monetary policy, exposing significant rally in Nikkei Average right after the decision.

But the decision was not made with friendly discussion by the board members. Supporters of additional easing thought that market would regard BoJ to have broken promise to achieve commodity price hike by 2%, if decision would not be made. They expected that the positive action would support economic revitalization.

However, negative members were worried about credibility of BoJ. The decision meant that most long-term governmental debt would be bought by BoJ, which might be recognized as financing for governmental budget. One member argued that the expectation of future inflation driven by the additional monetary easing would be limited.

Another negative element was cheap yen against dollar. Overwhelming recognition for negative members was that cheaper yen would have negative impact on small and middle businesses that had been supporting the economy. After the additional monetary easing, gas price has been keeping high level, annoying local people who were dependent on automobile for their daily life. Among nine members, four firmly opposed the decision, which became a rare case in the history of its policy meeting.

That discussion symbolically indicated that Abenomics was passing a corner. Damage of Abenomics on small and middle businesses has been obvious. BoJ was trying to fix the problem with additional monetary easing. But it was based on a notion that Prime Minister Shinzo Abe would be making effort to improve the balance of governmental budget by raising consumption tax rate as planned. As everybody knows, Abe did not do that. Monetary policy and political decision started making contradiction. Abe ignores the opinion that says it is the time for change.