27.05.201307:08:08UTC+00BOJ board rift over ambitious price goal

A rift within the Bank of Japan's board and Governor Haruhiko Kuroda over on steering its radical monetary stimulus that will end the two decades of damaging deflation has been a major problem for the institution. The differences of opinion were highlighted in the minutes of the April 26 meeting, which showed some policymakers opposed targeting 2 percent inflation in two years and called for more flexibility in guiding monetary policy.

"We're still seeing potential instability in the bond market," one member was quoted as saying in the minutes released on Monday.

The rift and the market volatility, which also hit Tokyo shares, pose a challenge to Prime Minister Shinzo Abe's sweeping monetary and fiscal expansionary policies aimed at reviving Japan's long-dormant economy. "Given how extreme the April easing step was, it's natural for disagreements to exist within the BOJ," said Yasuhide Yajima, chief economist at NLI Research Institute in Tokyo. "Failure to meet the price target will test the BOJ's credibility. But the bank's policy itself is contradictory. When expectations of inflation heighten, bond yields will rise. The BOJ can't really do anything to stop that."

The BOJ unleashed the world's most intense burst of stimulus last month, promising to inject $1.4 trillion into the economy in less than two years to meet its pledge of achieving 2 percent inflation in roughly two years.

At a subsequent meeting on April 26, the BOJ extended the period for its economic forecasts to three years and said Japan will likely approach 2 percent inflation in the latter half of the three-year period to March 2016.

"A few members said it was tough to achieve 2 percent inflation in the latter half of the forecast period as there is uncertainty over how changes in future inflation expectations will actually push up prices," according to the minutes, which likely referred to Kiuchi and Sato.

One of the two said the credibility of the BOJ's policy would be hurt if the central bank made forecasts bound with uncertainty and failed to achieve them, the minutes showed.

Both made unsuccessful proposals to water down the BOJ's commitment to meet 2 percent inflation in two years. Kiuchi said the central bank should limit the period for committing to its ultra-easy policy for two years, and review it thereafter to see whether it should be sustained.