BOJ board disagreed on how much yields can move freely: July meeting summary

By Leika Kihara

TOKYO (Reuters) - Bank of Japan board members disagreed on how far long-term interest rates should be allowed to move from the central bank's target when they crafted steps to make its policy framework more sustainable, a summary of opinions from last week's rate review showed.

At the July 30-31 policy meeting, the BOJ kept its pledge to guide long-term interest rates around zero percent, but said it would allow yields to move more flexibly.

BOJ Governor Haruhiko Kuroda told a post-meeting briefing that the bank would allow long-term yields to move at double the previous range of around minus 0.1 percent to 0.1 percent.

However, one board member said the BOJ should allow yields to move upward and downward by around 0.25 percent, referring to recent yield moves in other major economies, according to the summary, which was released on Wednesday.

"Controlling long-term yields in a flexible manner is likely to contribute to maintaining and improving market functions. Even if interest rates rise somewhat from the current level, its effects on economic activity and prices are likely to be limited," the board member was quoted as saying.

Another board member warned against allowing long-term rates to rise much, saying that doing so when inflation expectations remained weak could push up real borrowing costs and weigh on price growth, the summary showed.

There were also discussions on whether the BOJ should ramp up stimulus, instead of taking steps to make the current framework more sustainable, reflecting views within the board that it would take longer than expected to achieve the bank's 2 percent inflation target.

"It is necessary to strengthen monetary easing itself" instead of taking steps to prepare for a long-term battle to achieve the BOJ's price target, one member was quoted as saying.

A government representative present at the meeting said the government "welcomes" the BOJ's measures, in a sign the moves had endorsement from premier Shinzo Abe's administration, the summary showed.

(Reporting by Leika Kihara; Editing by Joseph Radford)