TOKYO (dpa-AFX) - Members of the Bank of Japan's monetary policy board said that economic activity in Japan continues to be flat, minutes from the bank's April 27 meeting revealed on Monday.
The members also expected that the Japanese economy would return to a path of moderate recovery - but the present lack of improvement prompted them to take action.
'By continuing to pursue monetary easing with the virtually zero interest rate policy, easing effects are expected to strengthen on the back of progress in economic recovery,' the minutes said. 'The Bank expects that, together with the cumulative effects of earlier policy measures, today's decision to further enhance monetary easing will better ensure the return of Japan's economy to a sustainable growth path with price stability.
At the meeting, the BoJ decided to add further monetary stimulus to the economy through enhanced purchases of the government bonds, stepping up its efforts to boost economic growth and fight deflation.
At the same time, the BoJ reduced the maximum outstanding amount of the Bank's fixed-rate funds-supplying operation against pooled collateral with a six-month term by JPY 5 trillion.
The size of the total asset purchase program for end-2012 will remain at JPY 65 trillion.
An additional JPY 10 trillion in purchase of Japanese government bonds (JGBs) will take the size of the asset purchases, excluding the credit facility, to JPY 40 trillion by end-2013. Asset purchase target for the end-2012 was enhanced to JPY 35 trillion from JPY 30 trillion announced earlier.
'Given that the Bank pursues powerful monetary easing in a severe fiscal situation, it is extremely important to maintain credibility in fiscal sustainability in financial markets, for the sake of effective transmission of the effects of monetary policy, financial system stability, and sustainable economic growth,' the minutes said.
By end-2012, purchases of JGBs will be increased by JPY 5 trillion to JPY 24 trillion and another JPY 5 trillion will be added in the following year. The bank also extended the maturity of bonds it buys to 3 years from two years.
The central bank also decided to increase the purchases of exchange traded funds (ETFs) and Japan real estate investment funds (J-REITs) by JPY 200 billion and JPY 10 billion respectively.
As expected, the benchmark uncollateralized overnight call rate was retained at 0-0.1 percent.
The central bank noted that the risk of the European debt problem causing financial market turmoil has decreased and the U.S. economy has continued to recover at a moderate pace.
Japan's economy is expected to return to a moderate recovery path in the first half of fiscal 2012. The central bank now forecasts 2.3 percent economic growth in fiscal 2012, faster than 2 percent growth seen in January. The growth outlook for 2013 was lifted slightly to 1.7 percent from 1.6 percent previously.
The bank expects inflation to gradually rise to a range of above 0.5 percent and less than 1 percent as the aggregate supply and demand balance improves.
'The year-on-year rate of change in the CPI is expected to gradually rise to a range of above 0.5 percent and less than 1 percent toward the latter half of the projection period in the Outlook Report,' the minutes said. 'Thereafter, it will likely be not too long before the rate reaches the Bank's 'price stability goal in the medium to long term' of 1 percent for the time being. It is likely that Japan's economy will return to a sustainable growth path with price stability in the longer run.'
Also on Monday, the BoJ noted that an index measuring corporate service prices in Japan was up 0.2 percent on year in April, standing at 96.5. That beat forecasts for a contraction of 0.2 percent, which would have been unchanged from the upwardly revised reading in March - which originally was pegged at -0.3 percent. Prices were flat on month after jumping 0.9 percent in March.
Among the individual components, prices rose for advertising, communications and real estate services - while transportation and finance prices moved lower.
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