BOJ Funo: Must Maintain Easy Policy To Hit 2% CPI Target

     SAPPORO, Japan (MNI) - The Bank of Japan must maintain its aggressive

monetary easing policy stance to achieve stable 2% inflation, which would create

room for lowering real borrowing costs when the economy slumps, BOJ board member

Yukitoshi Funo said Wednesday.

     At the same time, Funo urged the government to implement structural reforms

and firms to provide goods and services that match demographic changes while

financial conditions are kept very accommodative.

     In a speech to business leaders in Sapporo City, northern Japan, Funo

repeated the BOJ's latest outlook that the momentum toward 2% inflation is

maintained and consumer prices will show a higher year-on-year rise toward the

inflation target.

     "But the momentum still lacks strength and we are only half way toward

achieving the price stability target," he said.

     Therefore, it is important to "push ahead" with aggressive easing

comprising super-low interest rates and large-scale asset purchases.

     Funo also repeated the BOJ's outlook that Japan s economy is likely to

continue its moderate expansion.

     He stuck to the official line that near-zero inflation is likely to rise to

2% "around fiscal 2019."

     "Looking ahead, compensation of employees is expected to increase

moderately and surpass the pace of nominal GDP growth in the second half of our

projection period through the end of fiscal 2019," Funo said.

     But he added that BOJ officials are watching the risk that companies will

remain cautious about wage hikes.

     Policymakers point out compensation of employees has been rising along with

a modest economic recovery but it is mainly pushed up by a high pace of increase

in lower-paid part-time and contract workers amid labor shortages in some

sectors. The year-on-year growth in average wages remains low.

     At its latest policy meeting on July 19-20, the BOJ board decided to leave

its monetary policy unchanged in a seven-to-two vote, retaining the yield curve

control target it adopted in September last year, while pushing back its

estimate for achieving its 2% inflation target by a year until "around fiscal

2019."

     Since joining the nine-member board in July 2015, Funo has been following

the reflationary policy stance of Governor Haruhiko Kuroda.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

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