Three-way split among BOJ board members over policy outlook: Sankei

September 6, 2016 10:31 PM EDT

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TOKYO (Reuters) - The Bank of Japan's nine board members are split over how to stimulate the economy, or whether to stimulate it at all, as they prepare for a review of the central bank's ultra-loose monetary policy, the Sankei newspaper reported on Wednesday.

The central bank will conduct a "comprehensive assessment" of its effect of stimulus program when it holds next meeting Sept. 20-21. And, according to the newspaper, there is a three-way split in the board over which policy strategy to follow.

One group believes the central bank should focus on its negative interest rate policy to stimulate growth, another advocates more purchases of Japanese government bonds to inflate the economy, while a third group opposes further stimulus.

BOJ Governor Haruhiko Kuroda is among those who support negative interest rates, according to the report.

Earlier this week, Kuroda for the first time publicly acknowledged that negative rates could dampen public sentiment by hurting banks' profits and the rate of returns on pension investments.

But he said monetary policy has yet to reach its limit, stressing that the BOJ had room to deepen negative rates.

Concerns are rising that there must be limits to the BOJ's bond purchases, as the central bank already holds a third of the JGB market.

The central bank now buys enough JGBs to keep the amount of bonds outstanding rising at a rate of around 80 trillion yen ($788.26 billion) annually.

But some private economists and market participants believe the target could be a more flexible range of 70-90 trillion yen.

Earlier this month, however, Governor Kikuo Iwata said the BOJ has no plans to reduce the amount of assets it buys or change the composition of assets it purchases in a way that would tighten monetary policy.

Board members Takehiro Sato and Takahide Kiuchi, both of whom are economists, oppose against more easing, arguing that it would cause unwanted side effects, like reducing banks' profit margins, the report said.

The BOJ's board members will also probably discuss whether the comprehensive assessment should reflect consensus or individual views, the Sankei said, citing a source.

Sources have told Reuters the BOJ will consider making some modifications to its policy framework and debate some of the unintended consequences of its ultra-loose policy.

($1 = 101.4900 yen)

(Reporting by Kaori Kaneko; Editing by Simon Cameron-Moore)



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