Bank of Japan Members Split on Economic Outlook, Minutes Show

March 23 (Bloomberg) -- Bank of Japan board members were divided on their views of the economy at their February meeting, reflecting signs of a sustained recovery at the same time as declines in consumer prices were deepening.

“Some members were of the view that upside and downside risks were becoming balanced” while others noted “considerable downside risks to the economy,” minutes of the Feb. 17-18 meeting released today in Tokyo show.

The minutes reflect divisions among a policy board that last week voted 5-2 in favor of expanding a credit program to 20 trillion yen ($222 billion) to prop up economic growth and combat deflation. Prime Minister Yukio Hatoyama applauded the move as he seeks to shore up the recovery ahead of a July upper-house election.

“The BOJ’s latest measure was apparently prompted by political pressure,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “The bank can at least avoid any criticism that it’s passive in easing policy, though the measure’s impact on the economy will be limited.”

One of the members who focused on the risks to growth in February “said that the economy would remain highly vulnerable to negative shocks, particularly until around summer 2010, and this warranted attention,” the minutes show.

Some members said the central bank should “act swiftly and decisively” when necessary, particularly as companies had “come to attach their expectations to monetary policy,” according to the minutes. A few said record declines in consumer prices excluding food and energy showed deflation may be “becoming widespread.”

View as Easing

Governor Masaaki Shirakawa said after last week’s meeting that the expansion of the credit program, introduced in December, can be viewed as monetary easing. He also said the economy is improving a bit more than the bank has expected, while adding that it will take time before prices stop falling.

Government officials including Finance Minister Naoto Kan had urged the central bank to do more to stamp out deflation as the government’s ability to explore fiscal stimulus is stymied by public debt approaching twice the size of the economy. The government raised its evaluation of the economy last week for the first time in eight months.

Consumer prices excluding fresh food decreased 1.3 percent in January from a year earlier, an 11th straight drop, and the central bank has said the pace of those declines will moderate as demand picks up. Prices excluding food and energy slid 1.2 percent, matching a record.