MNI POLICY: BOJ Kataoka: Prolonged Easing Will Boost Exit Cost

     TAKAMATSU, Japan (MNI) - Bank of Japan board member Goushi Kataoka said

Wednesday that the BOJ needs to achieve the 2% price target quickly, as

prolonged easing will cumulate policy side-effects, increasing the costs of an

exit strategy.

     Kataoka repeated his view that it is appropriate for the BOJ to strengthen

both their easy policy and commitment to it, as there is still some distance

between the price stability target and the real price level.

     Speaking to business leaders in Takamatsu City, southern Japan, he didn't

elaborate on how the BOJ could strengthen the degree of easy policy.

     At the January 22-23 meeting, the BOJ board kept monetary policy unchanged,

as Japan's economy is expanding moderately despite emerging downside risks.

     The board decided voted 7-to-2 to stand pat on the yield curve control

policy and the asset purchases, maintaining its recovery scenario as a worsening

of economic conditions hasn't been observed through economic data.

     The BOJ vowed to maintain the current easy policy "for an extended period

of time."

     Kataoka, a former private-sector economist, was one of the dissenters,

repeating his opinion that it would be better to promise additional easing in

the event of a downward revision to the board's longer-term inflation outlook.

     Other key points from Kataoka's speech:

     --Widening the positive output gap through strengthened easy policy is

needed and the BOJ also needs to influence market players and the wider

inflation expectations held by economic entities.

     --Kataoka also objected to the BOJ policy stance that they need to

patiently maintain easy policy to achieve the 2% price target. He voiced concern

over the risk that a prolonged output gap based on powerful easy policy will

overheat the economic cycle and financial environment.

     --If easy policy is prolonged, it will also lengthen the period that the

economy will face uncertainties, which in turn will increase uncertainty over

the achievement of the price stability target.

     --Prolonged easy policy will also increase the costs of an exit strategy

from the easy policy. Kataoka said, "I think the BOJ should take the

side-effects of easy policy into consideration based on the view that an early

achievement of the price target will prevent the BOJ from maintaining the easy

policy for a prolonged period.

     --Kataoka also said that the wider world economy is under pressure,

prompting policymakers to pay great attention to the impact of various global

risks.

     --The possibility of achieving the 2% price target is low and the momentum

toward achieving the 2% price target hasn't picked up.

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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