The minutes of the Bank of Japan's April 26 meeting showed a rift developing within the board over its ambitious stimulus plan, as a few policymakers opposed targeting 2 percent inflation in two years and called for more flexibility in guiding monetary policy.
The board also engaged in considerable debate over the bond market volatility after the BOJ's monetary easing on April 4, a sign the members were uneasy about the rise in borrowing costs that could undermine the central bank's ultra-loose policy.
"We're still seeing potential instability in the bond market," one member was quoted as saying in the minutes released on Monday.
The BOJ unleashed the world's most intense burst of stimulus last month, promising to inject $1.4 trillion into the economy in less than two years to meet its pledge of achieving 2 percent inflation in roughly two years.
At a subsequent meeting on April 26, the BOJ extended the period for its economic forecasts to three years and said Japan will likely approach 2 percent inflation in the latter half of the three-year period to March 2016.
Among the nine-member board, former economists Takahide Kiuchi and Takehiro Sato dissented against the new forecasts on the view that they were too ambitious in a country that has been mired in deflation for 15 years.
"A few members said it was tough to achieve 2 percent inflation in the latter half of the forecast period as there is uncertainty over how changes in future inflation expectations will actually push up prices," according to the minutes, which likely referred to Kiuchi and Sato.
One of the two said the credibility of the BOJ's policy will be hurt if the central bank made forecasts bound with uncertainty and failed to achieve them, the minutes showed.
Both made unsuccessful proposals to water down the BOJ's commitment to meet 2 percent inflation in two years. Kiuchi said the central bank should limit the period for committing to its ultra-easy policy for two years, and review it thereafter to see whether it should be sustained.
At the April 26 meeting, the BOJ voted unanimously to stick with the massive quantitative easing announced three weeks earlier, in which it pledged to double its Japanese government bond (JGB) holdings in two years as it expands the supply of money at an annual pace of 60 trillion ($593 billion) to 70 trillion yen.
While the aggressive stimulus has sent stocks soaring to 5-1/2-year highs, the massive scale of the BOJ's bond buying jolted the bond market and nudged the 10-year yield to its highest level in a year last week, casting a cloud over the effectiveness of the BOJ's easing.
On Sunday, BOJ Governor Haruhiko Kuroda said the country's financial institutions have sufficient buffers against losses they may incur from rises in bond yields, as long as the market moves are driven by prospects of an economic recovery.
He said the central bank will also be vigilant to any signs of overheating of asset prices or excessive risk-taking by financial institutions, adding that there were no signs of that now.
"Japan's financial system as a whole seems to possess sufficient resilience against such shocks as a rise in interest rates and deterioration in economic conditions," Kuroda told a seminar involving academics.
At the April 26 meeting, a few members said the market turbulence was due to a tug-of-war between downward pressure on yields from the BOJ's huge bond buying and upward pressure from expectations the central bank is determined to achieve 2 percent inflation at an early date, the minutes showed.
Some board members called for the need to continue examining steps to prevent a decline in liquidity in the JGB market that was blamed for the bond market volatility, the minutes showed, although they did not discuss any details or likely new ideas.