Minutes of the Monetary Policy Meeting

on September 8 and 9, 2004
(English translation prepared by the Bank's staff based on the Japanese original)

October 18, 2004
Bank of Japan

A Monetary Policy Meeting of the Bank of Japan Policy Board was held in the Head Office of the Bank of Japan in Tokyo on Wednesday, September 8, 2004, from 1:59 p.m. to 3:45 p.m., and on Thursday, September 9, from 8:59 a.m. to 11:26 a.m.¹

Policy Board Members Present Mr. T. Fukui, Chairman, Governor of the Bank of Japan
Mr. T. Muto, Deputy Governor of the Bank of Japan
Mr. K. Iwata, Deputy Governor of the Bank of Japan
Mr. K. Ueda
Mr. T. Taya
Ms. M. Suda
Mr. S. Nakahara
Mr. H. Haru
Mr. T. Fukuma

Government Representatives Present Mr. K. Ishii, Senior Vice Minister of Finance, Ministry of Finance²
Mr. M. Ishii, Deputy Vice Minister for Policy Planning and Coordination, Ministry of Finance³
Mr. B. Fujioka, Deputy Director General for Economic and Fiscal Management, Cabinet Office
Reporting Staff Mr. M. Shirakawa, Executive Director
Mr. A. Yamamoto, Executive Director
Mr. H. Yamaguchi, Director-General, Monetary Affairs Department
Mr. Y. Maehara, Adviser to the Governor, Monetary Affairs Department
Mr. S. Uchida, Senior Economist, Monetary Affairs Department
Mr. H. Yamaoka, Senior Economist, Monetary Affairs Department
Mr. H. Nakaso, Director-General, Financial Markets Department
Mr. H. Hayakawa, Director-General, Research and Statistics Department
Mr. K. Momma, Deputy Director-General, Research and Statistics Department
Mr. A. Horii, Director-General, International Department
Secretariat of the Monetary Policy Meeting Mr. K. Akiyama, Director-General, Secretariat of the Policy Board
Mr. T. Takei, Adviser to the Governor, Secretariat of the Policy Board
Mr. K. Murakami, Director, Secretariat of the Policy Board
Mr. T. Kato, Senior Economist, Monetary Affairs Department
Mr. K. Masaki, Senior Economist, Monetary Affairs Department

The minutes of this meeting were approved by the Policy Board at the Monetary Policy Meeting held on October 12 and 13, 2004 as "a document which contains an outline of the discussion at the meeting" stipulated in Article 20, Paragraph 1 of the Bank of Japan Law of 1997. Those present are referred to by their titles at the time of the meeting.
Mr. K. Ishii was present on September 9.
Mr. M. Ishii was present on September 8.

I. Summary of Staff Reports on Economic and Financial Developments⁴

A. Money Market Operations in the Intermeeting Period

The Bank conducted market operations in accordance with the guideline decided at the previous meeting on August 9 and 10, 2004.⁵ The outstanding balance of current accounts at the Bank moved at the 30-35 trillion yen level.

B. Recent Developments in Financial Markets

Against the background of the Bank's provision of ample liquidity, the weighted average of the uncollateralized overnight call rate generally moved in the 0.001-0.002 percent range, and on August 11 it fell slightly below zero. Interest rates on term instruments had been steady at low levels.

Japanese stock prices had dropped toward the middle of August, due to a fall in U.S. stock prices mainly reflecting the rise in crude oil prices and to Japan's lower-than-expected real GDP. They started to climb thereafter, however, reflecting factors such as a rebound in U.S. stock prices, and the Nikkei 225 Stock Average was recently moving in the range of 11,000-11,500 yen, around the same level as at the time of the previous meeting.

Long-term interest rates had dropped, reflecting more cautious views about the economic recovery following the release of weaker-than-expected economic indicators at home and abroad. Recently, they had risen to around 1.6 percent due partly to the rise in Japanese stock prices.

In foreign exchange markets, the yen was fluctuating in the range of 108-111 yen to the U.S. dollar, partly reflecting economic indicators at home and abroad.

C. Overseas Economic and Financial Developments

The U.S. economy continued to expand supported by domestic private demand components such as business fixed investment and household spending. However, based on preliminary estimates of GDP, the growth rate of real GDP for the April-June quarter of 2004 decelerated to 2.8 percent on an annualized quarter-on-quarter basis from 4.5 percent in the January-March quarter. The pace of increase in the number of employees had also been slowing somewhat since early spring. Given the continuing high crude oil prices in addition to these developments, future developments in the U.S. economy required close monitoring.

In the euro area, the economy had been recovering further. However, firms' investment stance continued to be weak and the employment situation remained severe. The momentum for economic recovery therefore remained weak.

As for East Asian economies, in China, both domestic and external demand continued to be on a strong expanding trend. Fixed asset investment was showing some strength again recently, after its pace of growth slowed temporarily due to measures taken by public authorities to contain overheating of investment. The year-on-year rate of increase in the consumer price index (CPI) was accelerating due to the rise in food prices. In many NIEs and ASEAN countries, exports and production continued to be on an uptrend, but the pace of growth was slowing recently. The year-on-year rate of increase in the CPI was rising steadily in most of the NIEs and ASEAN countries, partly reflecting their economic expansion and the rise in crude oil and food prices.

In U.S. and European financial markets, stock prices had declined toward the middle of August mainly because of the rise in crude oil prices and the announcement of weaker-than-expected earnings forecasts by some IT-related firms. Stock prices recovered thereafter, due partly to the rise in crude oil prices coming to a halt. Long-term interest rates remained unchanged on the whole, although they had declined temporarily due partly to the release of weaker-than-expected economic indicators.

In financial markets in many emerging economies, since the middle of August, stock prices had risen and the yield differentials between their sovereign bonds and U.S. Treasuries had narrowed due to factors such as favorable economic performance and the rebound in U.S. stock prices.

D. Economic and Financial Developments in Japan

1. Economic developments

Exports continued to increase with the expansion of overseas economies, albeit at a slightly slower pace recently. By region, exports to the United States had been growing steadily until the April-June quarter, but dropped in July, particularly those of automobile-related goods and consumer goods such as digital appliances. The growth rate of exports to the European Union (EU) remained low, and exports to East Asia increased only slightly in July as in the April-June quarter. Among exports to East Asia, deceleration in the pace of increase in those to China seemed to have been due partly to measures taken by public authorities to contain the overheating of the Chinese economy.

Business fixed investment continued to increase. Business fixed investment in nominal terms continued to increase steadily in the April-June quarter, following a slight increase in the previous quarter, according to the Financial Statements Statistics of Corporations by Industry, Quarterly. Shipments of capital goods (excluding transport equipment) increased steadily in July as in the April-June quarter. Machinery orders (private demand, excluding shipbuilding and orders from electric power companies), a leading indicator of business fixed investment, surged in the April-June quarter, particularly those from manufacturers, after dropping in the previous quarter. In addition, forecasts of machinery orders for the July-September quarter indicated that business fixed investment would continue its rising trend.

Corporate profits continued to improve steadily regardless of the industry or size of firm, according to the Financial Statements Statistics of Corporations by Industry, Quarterly.

As for the employment and income situation, indicators reflecting labor market conditions such as job offers and the unemployment rate had been improving, albeit with some fluctuations. The number of employees was on an uptrend. With regard to wages, overtime payments continued to increase on a year-on-year basis. Regular payments were still on a downtrend in terms of the average per person, mainly due to the rise in the proportion of part-time workers, but the rate of decline had been diminishing gradually. Special payments in the June-July period dropped by 3.1 percent on a year-on-year basis. This drop was mainly due to the downward pressure on the average bonus paid as a result of the rise in the proportion of part-time workers, and the weakness in the government services sector reflecting developments in bonuses paid to civil servants.

Private consumption continued to show some positive movements.

Reflecting these developments, production increased by 2.6 percent in the April-June quarter on a quarter-on-quarter basis, but dropped by 0.6 percent in July compared with the monthly average for the April-June quarter. This, taken in conjunction with the developments in exports, suggested that it was likely that the effects of the deceleration in overseas economies observed in the April-June quarter had started to emerge. Inventories continued to decline as a whole, although movements differed according to the type of goods. Inventories of materials-related goods were declining due to strong demand. Those of electronic parts, on the other hand, had entered the adjustment phase. It was considered likely, however, that they would basically need to be adjusted only slightly given that the market for digital appliances was projected to continue growing, albeit with some fluctuations, and that firms were starting to restrain their production before inventories became significantly excessive. Nevertheless, developments in domestic as well as external demand toward the end of the year required close monitoring in regard to the degree and period of adjustment.

On the price front, domestic corporate goods prices had been rising due to the strengthening of commodity prices at home and abroad and to the improvement in supply and demand conditions. Consumer prices (excluding fresh food) had been declining slightly on a year-on-year basis. The year-on-year rate of decline in consumer prices (on a nationwide basis) increased to 0.2 percent in July from 0.1 percent in June. This was because the upward pressure on consumer prices from the rise in tobacco tax in July 2003 had dissipated. As for the outlook, the rise in prices of petroleum-related products such as gasoline, which was due to the rise in crude oil prices in the July-August period, was expected to push consumer prices upward. On the other hand, rice prices were projected to start declining on a year-on-year basis from October. Consumer prices were therefore projected to basically continue falling slightly on a year-on-year basis.On the price front, domestic corporate goods prices had been rising due to the strengthening of commodity prices at home and abroad and to the improvement in supply and demand conditions. Consumer prices (excluding fresh food) had been declining slightly on a year-on-year basis. The year-on-year rate of decline in consumer prices (on a nationwide basis) increased to 0.2 percent in July from 0.1 percent in June. This was because the upward pressure on consumer prices from the rise in tobacco tax in July 2003 had dissipated. As for the outlook, the rise in prices of petroleum-related products such as gasoline, which was due to the rise in crude oil prices in the July-August period, was expected to push consumer prices upward. On the other hand, rice prices were projected to start declining on a year-on-year basis from October. Consumer prices were therefore projected to basically continue falling slightly on a year-on-year basis.

2. Financial environment

While firms continued to reduce their debts, the pace of decline in credit demand in the private sector was becoming somewhat moderate, since corporate activity had been recovering, as seen in the ongoing increase in business fixed investment. The lending attitude of private banks was becoming more accommodative, and that of financial institutions as perceived by firms, including small firms, had been improving noticeably. The year-on-year rate of decline in lending by private banks had basically been diminishing.

With regard to financing through capital markets, the issuing environment for CP and corporate bonds continued to be favorable, as seen in low and stable credit spreads. The amount outstanding of CP and corporate bonds issued continued to be above the previous year's level.

The year-on-year growth rate of the monetary base had been at the 4.0-5.0 percent level, with the continuing downtrend in the growth of banknotes in circulation mainly due to decreasing anxieties about the financial system. That of the money stock (M2+CDs) was around 2.0 percent.

4Reports were made based on information available at the time of the meeting.
5The guideline was as follows:
The Bank of Japan will conduct money market operations, aiming at the outstanding balance of current accounts held at the Bank at around 30 to 35 trillion yen.
Should there be a risk of financial market instability, such as a surge in liquidity demand, the Bank will provide more liquidity irrespective of the above target.

II. Summary of Discussions by the Policy Board on Economic and Financial Developments

A. Economic Developments

Members' discussion on the state of Japan's economy centered on the assessment of developments in overseas economies, which were decelerating somewhat, and on whether some weak indicators released, such as those relating to exports, production, and wages, were signs of changes in the recovery trend of the economy.

Members agreed that overseas economies overall, while decelerating from their high growth so far toward a more sustainable rate of growth, continued to expand steadily.

With regard to the U.S. economy, many members noted that deceleration in the U.S. real GDP growth rate in the April-June quarter was due mainly to the slowdown in growth in private consumption against the background of factors such as the rise in gasoline prices and the falling off of the effects of tax cuts. These members therefore expressed the view that what was important was how they assessed developments in the U.S. economy thereafter.

Regarding this point, many members commented that pessimistic views about the U.S. economy that had been observed temporarily in the market seemed to have subsided, since private consumption, particularly automobile sales, had showed strength again in July, and, regarding the employment situation, which had been cause for concern, the increase in the number of employees in August was almost in line with the forecast. These members said that, given that developments in the corporate sector, such as in business fixed investment and corporate profits, remained strong, the U.S. economy could be judged as shifting to a steady and sustainable rate of growth, maintaining momentum for economic expansion.

One member said that future developments in the employment situation continued to require particular attention, given, for example, that average hourly earnings were on an uptrend and unit labor costs were bottoming out. Many members said that future developments in the U.S. economy warranted close monitoring for the following reasons: high crude oil prices and geopolitical risks persisted; the improvement in the corporate sector was spreading only slowly to employment and income; and the Federal Reserve had started to raise its target for the federal funds rate. In relation to this point, one member added that developments in Christmas sales would be a key factor for the U.S. economy.

With regard to the Chinese economy, some members noted that the pace of growth in fixed asset investment, which had slowed temporarily, was accelerating again. They expressed the view that the economy continued its high growth, although there remained a bottleneck arising from the infrastructure and there was still a risk of the economy overheating. As for the NIEs and ASEAN countries, a few members pointed out that the slowdown in global demand for IT-related goods was reflected in their decelerating exports and production.

With regard to European economies, some members said that economic recovery had been strengthening slightly due partly to an expansion in exports. One member noted that moves to extend working hours without raising wages had been initiated and expressed the view that progress in structural adjustments could now be expected.

Some members noted that crude oil prices remained high and said that it was necessary to continue monitoring carefully their effects on the world economy, including Japan's economy, and on prices. One member pointed out that the effects of the high crude oil prices should be examined, taking into account the fact that their effects on each country's economy and prices varied depending on factors such as the country's energy efficiency and industrial structure. Another member commented that demand for crude oil was increasing possibly due to stronger demand for transportation services stemming from transportation of parts and reimports of products by firms as a result of shifting their production to overseas locations such as China, and also due to the low energy efficiency of production in countries such as China.

Based on the above understanding of developments in overseas economies, members exchanged views on their assessment of Japan's exports and production, which were almost flat in July following the substantial increases in the April-June quarter, and inventories of electronic parts, which seemed to have entered the adjustment phase.

Many members agreed that production was likely to continue increasing, although at a slightly slower pace, for the following reasons. First, exports were expected to remain on an uptrend with the steady expansion of overseas economies. Second, domestic demand continued to recover. And third, inventories taken as a whole were well balanced, as inventories of materials-related goods, for example, were declining. A few members said that growth in production had so far been supported by IT-related goods, but this situation might change to one where the materials industry and sectors of the processing industry not related to IT underpinned production.

As for developments surrounding IT-related goods, some members said that they were paying attention to the fact that the growth in global demand for IT-related goods was decelerating slightly, as seen in the decrease in exports of digital appliances to the United States, and that some private research institutes and IT-related firms were revising their demand forecasts downward. A few of these members added that there was a possibility that the cycle of global demand for IT-related goods, the "silicon cycle," might have entered a contraction phase. One member expressed concern that the book-to-bill ratio, the ratio of orders to shipments, of semiconductor manufacturing equipment had peaked out in Japan and that business fixed investment in such equipment was forecasted to decrease.

With regard to this point, many members expressed the view that adjustments in production of IT-related goods were not expected to be significant for the following reasons. First, this time, suppliers were generally taking a cautious stance on production and accumulation of inventories and had started adjustment at an earlier stage based on lessons learned from the experience at the time of the bursting of the IT bubble in 2001. And second, semiconductors were in demand for a wider range of products such as digital appliances. They added, however, that developments in supply-demand conditions of IT-related goods continued to warrant careful monitoring, as they were volatile and difficult to forecast. A few members expressed the view that, compared with the time when the IT bubble burst in 2001, firms had ample cash flow and their balance sheets had improved owing to the progress in devaluation of their fixed assets under impairment accounting rules, and these factors were underpinning the economic recovery.

Some members noted a concern that the economic recovery might stall if inventory adjustments of IT-related goods were severe and sudden as at the time of the bursting of the IT bubble in 2001. However, these members said that it was reasonable to expect a long-lasting economic recovery if the adjustments in IT-related goods progressed while the overall economy continued to recover. They added that developments in demand for IT-related goods were a key factor in assessing the future course of the economy.

Many members expressed the view that business fixed investment was likely to continue on an uptrend for some time, pointing to the fact that, with the continuing substantial rise in corporate profits, it had been increasing considerably both at manufacturers and nonmanufacturers in fiscal 2004 so far according to the Financial Statements Statistics of Corporations by Industry, Quarterly. Furthermore, one member said that the increase in business fixed investment of manufacturers was expected to be sustainable since the ratio of capital stock to GDP was declining due to an increased rate of elimination of capital stock. A few members, however, said that figures for business fixed investment of nonmanufacturers in the Financial Statements Statistics of Corporations by Industry, Quarterly were much stronger than the results of other surveys such as the Tankan (Short-Term Economic Survey of Enterprises in Japan), and expressed the view that this could be due partly to changing the firms sampled. Therefore, the strength of nonmanufacturers' business fixed investment needed to be checked again in the September Tankan to be released in early October.

As for the household sector, many members said that it was gradually becoming clearer that the effects of the increase in corporate profits were spreading to the employment situation, as was evident in the continuing improvement in indicators relating to job offers and the number of employees. However, they added that the extent to which this had spread to wages still seemed to be limited. For example, regular payments were still on a downtrend in terms of the average per person, mainly due to the rise in the proportion of part-time workers, and special payments dropped by 3.1 percent on a year-on-year basis in the June-July period according to the Monthly Labour Survey, although summer bonuses had been expected to increase.

Some members said that private consumption continued to show some positive movements underpinned by the improvement in consumer confidence. A few members, however, said that the sustainability of the positive developments in private consumption needed to be monitored closely because positive effects of the extremely hot weather and the summer Olympic Games seemed to have been weaker than expected, and the household burden was expected to increase due to reforms of the tax system and the pension system.

Given this assessment of the economic situation, members concurred that it was not necessary to change the basic assessment that the economy would gather stronger momentum as effects of the improvement in the corporate sector extended into the household sector, although future developments in the economy required close monitoring since the growth of exports and production was decelerating slightly recently and there were some developments in wages that warranted attention. Some members said that economic expansion seemed to have started to slow slightly earlier than expected, but it could be judged that the economy was shifting to steady and sustainable growth from the high growth rates achieved in the October-December quarter of 2003 and the January-March quarter of 2004. A few members, however, said that although there was no significant change in the trend of the economy, the pace at which the improvement in the corporate sector spread to the household sector might be slightly slower than expected as was seen in developments in wages.

Members also agreed that there was no significant change in the underlying trend of prices.

Some members noted that domestic corporate goods prices increased by 1.6 percent on a year-on-year basis in July, registering the largest increase since the bubble period, due to high commodity prices at home and abroad, including crude oil prices, high shipping charges, and the improvement in supply-demand conditions. These members said that prices rose mainly for materials and intermediate goods and that the price pass-through to consumer goods was still limited except for some products such as gasoline.

Many members said that consumer prices had been declining slightly on a year-on-year basis as there was still some slack in supply and demand conditions, although they were gradually improving, and the increase in prices of materials was still being absorbed to some extent by the corporate sector with the decline in unit labor cost.

Regarding the outlook, many members expressed the view that, basically, consumer prices were likely to continue falling slightly on a year-on-year basis, in line with the Bank's interim assessment presented in July 2004. This was because, although factors such as the raises in prices of gasoline in September would push up consumer prices, rice prices were expected to decline placing downward pressure on consumer prices as a bumper crop had been reported. One member commented that planned reductions in electricity charges were expected to push consumer prices down in the near future.

A few members expressed the view that the disparity between developments in economic activity and prices seemed to have become more pronounced. These members said that they had been aware of the possibility of a positive year-on-year rate of change in consumer prices during the July-September period, but this was becoming very unlikely given the developments so far. They expressed the view that it was thus becoming clearer that prices had become less sensitive to economic recovery.

B. Financial Developments

On the financial front, some members commented on developments in stock prices and long-term interest rates in Japan.

A few members said that Japanese stock prices had declined toward the middle of August, but against the background of the continuing economic recovery, started to rise thereafter reflecting the rebound in U.S. stock prices, and were recently moving slightly above the level at the time of the previous meeting. With regard to the Japanese government bond market, they commented that long-term interest rates had declined to around 1.5 percent reflecting more cautious views about the outlook for the economy, but had recently recovered to around the level at the time of the previous meeting. They expressed the view that, as financial markets were showing somewhat nervous developments based on market views about the economy, developments in the financial markets continued to require close monitoring. One member said that attention should continue to be paid to the effects of future developments in liquidity that had accumulated as a result of the worldwide monetary easing, although the volatility of financial markets at home and abroad had declined.

Some members said that the money market was extremely stable. One member added that market participants were feeling strongly that there was an abundance of liquidity as seen in high bid-to-cover ratios in the Bank's funds-absorbing operations.

III. Summary of Discussions on Monetary Policy for the Immediate Future

On the monetary policy stance for the immediate future, members agreed that, based on the assessment of the current economic and financial situation, it was appropriate to maintain the current guideline for money market operations with the target range of "around 30 to 35 trillion yen" for the outstanding balance of current accounts at the Bank.

Regarding the conduct of monetary policy, some members again noted that views on the outlook for the economy differed slightly between participants in different financial markets, and said that at such times, market expectations tended to fluctuate easily and financial markets tended to become volatile. Therefore, these members said that it was important that the Bank closely monitor market developments and present its assessment of economic activity and prices and its thinking on the conduct of monetary policy clearly to market participants.

One member pointed out that, when presenting the assessment of economic activity and prices, it was important that the Bank communicate in a manner that was clear to market participants whether or not there was a change in the Bank's assessment regarding the basic mechanism of the economic recovery.

One member said that the disparity between developments in economic activity and prices had significant implications for the Bank's conduct of monetary policy. This member continued that the Bank should monitor closely whether some sort of distortion would accumulate in the economy as prices seemed to have become less sensitive to economic recovery.

Some members commented on the Bank's money market operations through the end of September 2004, the time of semiannual book closings. These members said that a need for the Bank to conduct exceptional operations in accordance with the contingency clause of the guideline for money market operations was not expected so far, since there seemed to be little concern about the financial system and the money market had been extremely stable.

IV. Remarks by Government Representatives

The representative from the Ministry of Finance made the following remarks.

(1) The Japanese economy was recovering at a solid pace as improvements in the corporate sector were extending into the household sector. Recent economic indicators, however, showed that the pace of increase in exports was slowing and that firms in some parts of the manufacturing sector were adjusting production. It was therefore important in assessing the state of the economy to closely monitor the future course of these developments.
(2) Attention should also be paid to risk factors for the Japanese economy, such as developments in overseas economies, for example the U.S. economy, and the effects of crude oil prices on both the domestic and overseas economies.
(3) As deflation persisted, the government would like the Bank to firmly maintain its commitment to continuing the quantitative easing policy. As the representative of the Ministry of Finance had said in the previous meetings, the government would also like the Bank to deliberate what kind of new measures the Bank could take to maintain market expectations that the accommodative financial environment would continue and to ensure the sustainability of the economic recovery.

The representative from the Cabinet Office made the following remarks.

(1) The Japanese economy was recovering at a solid pace. On the other hand, attention should be paid to the effects on both the domestic and overseas economies of developments in crude oil prices and to developments in the world economy, among other factors. With regard to price developments, in a situation where the output gap had contracted due to the steady economic recovery, while the growth rate of the money stock was at low levels due partly to sluggish lending by banks, domestic corporate goods prices were rising reflecting the rise in materials prices such as crude oil prices. However, the price situation overall could be assessed as being still only halfway to overcoming deflation. The most important task for Japan's economy was therefore to overcome deflation swiftly and achieve sustainable growth led by private demand.
(2) To this end, the government would pursue early implementation of "Basic Policies for Economic and Fiscal Management and Structural Reform 2004." In order to carry out structural reforms comprehensively and swiftly, the government was having intensive discussions at the meetings of the Council on Economic and Fiscal Policy on matters such as the reform of special accounts in the government's budget, the reform package relating to three issues-reform of state subsidies, transfer of tax resources from the central to local governments, and reform of local allocation tax-and the reform of the social security system.
(3) The Bank was determined to firmly maintain the quantitative easing policy. In this regard, the government would like the Bank to implement more effective monetary policy, including measures that would lead to more effective provision of liquidity, continuing to communicate closely with the government. Public attention was focused on developments in interest rates as the Japanese economy had been recovering steadily. The government would therefore like the Bank, through deliberations based on its expertise, to make further efforts to enhance the transparency of the conduct of monetary policy by, for example, presenting a path toward overcoming deflation.

V. Votes

Based on the above discussions, members considered that it was appropriate to maintain the current guideline for money market operations with the target for the outstanding balance of current accounts at the Bank at around 30 to 35 trillion yen.

To reflect this view, the chairman formulated the following proposal and put it to the vote.

The Chairman's Policy Proposal on the Guideline for Market Operations:

The guideline for money market operations in the intermeeting period ahead will be as follows, and will be made public by the attached statement (see Attachment 1).

The Bank of Japan will conduct money market operations, aiming at the outstanding balance of current accounts held at the Bank at around 30 to 35 trillion yen.

Should there be a risk of financial market instability, such as a surge in liquidity demand, the Bank will provide more liquidity irrespective of the above target.

Votes for the proposal: Mr. T. Fukui, Mr. T. Muto, Mr. K. Iwata, Mr. K. Ueda, Mr. T. Taya, Ms. M. Suda, Mr. S. Nakahara, Mr. H. Haru, and Mr. T. Fukuma.
Votes against the proposal: None.

VI. Discussion on the Bank's View of Recent Economic and Financial Developments

Members discussed "The Bank's View" in the Monthly Report of Recent Economic and Financial Developments (consisting of "The Bank's View" and "The Background"), and put it to the vote.

The Policy Board decided, by unanimous vote, the text of "The Bank's View." It was confirmed that "The Bank's View" would be published on September 9, 2004 and the whole report on September 10, 2004.⁶

6The English version of the whole report was published on September 13, 2004.

VII. Approval of the Minutes of the Monetary Policy Meeting

The Policy Board approved unanimously the minutes of the Monetary Policy Meeting of August 9 and 10, 2004 for release on September 14, 2004.

VIII. Approval of the Scheduled Dates of the Monetary Policy Meetings in October 2004-March 2005

At the end of the meeting, the Policy Board approved the dates of the Monetary Policy Meetings to be held in the period October 2004-March 2005, for immediate release (see Attachment 2).

Attachment 1 br September 9, 2004
Bank of Japan

At the Monetary Policy Meeting held today, the Bank of Japan decided, by unanimous vote, to set the following guideline for money market operations for the intermeeting period: