Many BOJ members more cautious about global risks -June minutes

TOKYO, (Reuters) - Many Bank of Japan policy board members recognised that overseas economies pose a growing risk to Japan’s recovery and a few expressed concern about the adverse effects of a strong yen, June meeting minutes showed, suggesting the board was becoming more cautious even as it upgraded its view on the economy.

The minutes also showed that two of the central bank’s nine policy board members said there remained a potential need to ease policy further to sustain the economy’s recovery and ensure price stability.

“Many members expressed the view that downside risks from overseas economies have somewhat heightened,” the minutes of the June 13-14 meeting showed on Friday.

“Some members said the pace of the U.S. economic recovery could be slow while its downside risks warranted attention.”

Most members, however, said it was appropriate to continue monitoring the effects of the BOJ’s 10 trillion yen ($126 billion) asset buying scheme before considering further steps, while the two who tilted toward easing indicated they felt there was no urgent need to act, the minutes showed.

The BOJ at the June meeting kept monetary policy on hold and reiterated its forecast that the world’s third-largest economy would resume a moderate recovery before the end of the year despite recent signs of a global slowdown.

GLOBAL SLOWDOWN

It also sounded less concerned than in the previous month in describing current economic conditions, reflecting the steady progress manufacturers have been making to restore production and supply chains which were disrupted by the March 11 earthquake and tsunami.

At a subsequent meeting this week, the central bank kept monetary policy on hold and gave a brighter assessment of the economy, encouraged by a rebound in factory output and signs that the recovery from the March disaster is broadening.

But the BOJ could come under stronger pressure for action after the yen shot up to a four-month high against the dollar this week, driven by mounting risk aversion among investors as sovereign debt worries worsened in Europe and the United States and as Federal Reserve Chairman Ben Bernanke dropped hints of potential easing.

The central bank could be prompted to loosen policy if the yen rises sharply enough to threaten its forecast that Japan’s economy will resume a moderate recovery when it shakes off supply constraints in the autumn.

One member pointed out at the June meeting that the economy’s recovery path could be more modest than assumed before the March disaster, and was more mindful of downside risks than of upside potential, the minutes showed.

At the June meeting, the BOJ also expanded a loan scheme targeting growth industries, keeping up efforts to address chronic ills that had been plaguing the economy even before the earthquake.

It added 500 billion yen to the 3 trillion-yen programme, which aims at encouraging banks to lend to industries with growth potential.

In a sign of more divisions within the board, one member argued against expanding this scheme by a significant amount, the minutes showed.