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To: Haim R. Branisteanu who wrote (176591)	7/1/2002 10:19:26 AM
From: Haim R. Branisteanu	Respond to of 436258

BOJ Minutes: Concerned Exports May Decline On Yen Rise -- Repeating story from earlier TOKYO (Dow Jones)--Bank of Japan board members expressed concern over the rising yen and its adverse impact on the Japanese economy, according to minutes of the May 20-21 BOJ board meeting released Monday. As expected, board members voted unanimously to maintain the target for overnight bank reserves at the BOJ in a range of Y10 trillion-Y15 trillion at the meeting. The decision marks the third consecutive unanimous vote to keep policy on hold. The minutes showed that all members discussed recent developments in the foreign exchange markets, voicing concerns a weaker dollar would damage the fragile economic recovery by leading to a decline in exports and a worsening of corporate profits. A stronger yen in theory hurts the economy by making Japanese exports more expensive in overseas markets and reduces Japanese firms' overseas earnings when repatriated. According to the minutes, there was no call for intervention in foreign exchange markets at the meeting. The BOJ, at the request of the Ministry of Finance, conducted yen-selling interventions May 22 and 23 to stop the resurgent yen from snuffing out Japan's nascent economic recovery, soon after the BOJ board meeting. The yen-selling move sent the dollar rocketing above Y125 from a 7-month low of Y123.52 hit earlier May 22. The size of the yen-selling interventions over the two days appears to have totaled about Y1 trillion. Japan's Finance Minister Masajuro Shiokawa said May 22: "Recent movements of foreign exchange rates have been too rapid. We have taken appropriate action today in the exchange market." Japan's economic recovery is largely dependent on the strength of exports, which are helped by a weak yen and a recovery in the U.S. economy. According to the minutes, the BOJ board members said the U.S. economy and weak dollar posed possible risks for the Japanese economy. Many members said the optimistic view on the U.S. economy held by market players has probably adjusted, and that it will take a long time for capital spending there to recover. One member said skepticism over corporate disclosure of accounting information, as well as questionable morals, were factors behind the investor exodus from stock markets in the world's largest economy. "A few members expressed the view that the background to the drop in the dollar was a slowdown in the flow of funds to the U.S., while the U.S also has a large amount of external debts and a large current account deficit," the minutes said. Members also said attention should be paid to the possibility of large fluctuations in foreign exchange markets, the minutes said. One member cited the possibility of the rising dollar trend being corrected in the medium to long term, the minutes said. Others said the rising dollar would remain a long-term trend. Members attributed the falling dollar to waning optimism over the U.S. economy, while Japanese and European economies were recovering. Despite concerns over a stronger yen, most members agreed to upgrade the BOJ's economic assessment on the back of an increase in exports and progress in inventory adjustment. The BOJ in May upgraded its economic assessment for the third consecutive month, saying the rate of decline has eased. The BOJ's May report came after the release of the government's economic report, which declared the economy had bottomed out. According to the minutes, all members agreed it was appropriate for the BOJ to continue injecting ample liquidity to markets because there were no signs of a domestic demand recovery and the downside risks for the economy continue. "Many members stressed the importance of addressing corporate and market concerns and of maintaining the BOJ's commitment in terms of policy duration at a time when the economy was finally starting to show positive signs and markets beginning to stabilize," the minutes said. Some members also emphasized the need for the BOJ to pay attention to liquidity developments. Given the weak nature of the economy, some members said it was necessary to continue deliberating on measures over the long-term in case further monetary easing was necessary, according to the minutes. However, members didn't discuss any concrete measures the BOJ may take. One member argued that further increasing the current account balance target and diversifying means of market operations would involve various uncertainties in terms of feasibility, as well as impact. According to the minutes, the board members predicted personal spending, a key requirement for a self-sustainable economic recovery, would remain weak given the severe conditions in labor markets as well as falling incomes. The view was shared by many members that Japan's prices would continue to fall moderately, given weak wages and an increasing supply-demand gap in the economy. Some members said it wasn't appropriate to measure the impact of the easy policy through any increase in lending to private companies or through money supply, while structural reform was ongoing in Japan. Representatives from the Ministry of Finance and the Cabinet Office repeated calls for the BOJ to consider drastic policy easing, as they did at previous board meetings. The representative from the MOF said he would like to ask the BOJ to conduct monetary policy in a timely manner to overcome deflation. -By Hiroshi Inoue, Dow Jones Newswires; 813-5255-9203; hiroshi.inoue@dowjones.com