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MNI (London)
By Hiroshi Inoue
     TOKYO (MNI) - Japan's lawmakers and monetary policymakers must better
coordinate their actions towards hitting the 2% inflation target, as Bank of
Japan officials are becoming increasingly concerned current government policy
hinders hitting the price stability target, MNI understands.
     BOJ Governor Haruhiko Kuroda has repeatedly said that the BOJ is making
utmost efforts to hit the 2% price target, agreed in tandem back in January
2013, with a prolonged easy policy.
     However, recent government policy decisions, including the launch of free
pre-elementary education, calls for lower mobile phone charges and the
encouraging of foreign nationals to work in Japan will all further increase
downward pressure on consumer prices.
     Although free kindergarten places and cheaper phone plans will boost
household spending, which in turn will boost economic activity, BOJ officials
are concerned the moves will also dampen price hikes and delay achieving the 2%
target -- as will the influx of foreign workers, which will likely restrict wage
hikes for domestic workers.
     Japan's Prime Minister, Shinzo Abe, has said that the government is
prioritizing higher wages, along with higher consumer prices, looking to
overcome years of deflation. But the government's policies aren't consistent
with the price goal
     --CANNOT ABANDON GOAL
     But the BOJ are increasingly concerned that unless the government shows
greater policy flexibility towards achieving the target, the central bank will
need to maintain easy policy for a prolonged period, even as side affects build
up.
     It is very unlikely Japan abandons its 2% price stability target, seen as
the global standard, as such a move could lead to a swift strengthening of the
yen.
     In the recently published 'summary of opinions' from the January 22/3
meeting, one BOJ board member saw the need to prepare further policy responses
if downside risks to economic activity and prices materializes. 
     Another saw the need to avoid expectations in financial markets that the
building side-effects would mean no policy change occurring, even as the price
outlook continues to be revised lower.
     Many board members are playing down the side-effects of easy policy but the
accumulated distortions are increasing the risks that they will destabilize the
financial system -- and that is certainly a concern for the BOJ.
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
[TOPICS: MMJBJI,MAJDS$,MMJBJ$,M$A$$$,M$J$$$,MT$$$$,MX$$$$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com