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What's worrying the Bank of Japan?

May 2, 2013: 7:18 AM ET

Bank of Japan Governor Haruhiko Kuroda speaks during a press conference in Tokyo.

Some members of the Bank of Japan have expressed concerns over the central bank's ambitious new monetary policies, warning that overly aggressive action could discourage lending, or produce otherwise unwanted side effects.

The concerns were disclosed in the minutes of the central bank's early April meeting, an event that ultimately produced a pledge to rapidly expand the bank's balance sheet through the purchase of  longer-term debt and securities, such as exchange traded funds, or ETFs.

The new purchases -- made at an annual pace of 60 trillion to 70 trillion yen -- will double the bank's monetary base over a two-year period.

The bond-buying spree is part of the bank's bid to end 15 years of falling prices, and reach a 2% inflation target by 2015. But some board members have reservations.

The minutes do not name names, but we do know that one member warned of banks being less willing to lend should interest rates decline dramatically. The same member also warned that returns on investments, such as life insurance and pension funds, could dry up under that scenario.

Another member raised the possibility that the Bank of Japan's policy would be seen as an effort to finance Japan's fiscal deficits.

There were also concerns over maintaining the bank's "financial soundness."

"Members shared the view that, in conducting massive purchases of [Japanese bonds] and risk assets, maintaining the Bank's financial soundness was important," the minutes said. One member suggested looking at whether it would be feasible for the government to cover any losses the Bank of Japan may suffer.

Still, the bank expressed overall confidence in its policies.

"These effects will support the positive movements that have started to appear in economic activity and financial markets, contribute to a further pick-up in inflation expectations that appear to have risen, and lead Japan's economy to overcome deflation that has lasted for nearly 15 years," the minutes said.

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