MNI POLICY: BOJ Sakurai: Need Easy Policy; Eye On Side-Effects

     AKITA, Japan (MNI) - it is appropriate for the Bank of Japan to maintain

its current powerful easy policy while paying attention to developments of both

the stability of the financial system and economic conditions, board member

Makoto Sakurai said Thursday.

     "It's important for the BOJ to examine the side-effects of easy policy and

to keep the sustainability of the easy policy," Sakurai said in a speech to

business leaders in Akita City, northern Japan.

     At the BOJ's previous policy meeting on Sep 18-19, the board decided in a

7-2 vote to maintain its current monetary easing stance under the yield curve

control framework, vowing to keep very low interest rates "for an extended

period of time."

     Other key points from Sakurai's speech:

     --Sakurai, an advocate of the idea that the BOJ must keep a close eye on

the side-effects of easy policy, warned, "Maintaining the easy policy to achieve

the price stability target will cause a risk the financial and economic

imbalances accumulate."

     --Low interest rates will lower banks' profits and undermine banks' capital

bases, which in turn will slow banks' risk-taking activities. If banks' assets

worsened, it would impair banks' ability to maintain businesses, which will

worsen functioning in the financial system.

     --The BOJ must examine financial imbalances and manage monetary policy in

an appropriate manner, he said, without elaborating how the BOJ addresses the

risks its facing now.

     --Sakurai also voiced concern over increasing uncertainties regarding the

outlook for the global economy and over downside risks from trade disputes and

fund outflows from emerging economies.

     --Sakurai gave an optimistic outlook for Japan's economy, but warned of the

risk that Japan's economy may deviate from the baseline scenario, depending on

the degree of shock caused from protectionism and emerging economy fund

outflows.

     --On inflation rates, Sakurai said Japan's price moves are weaker than

initially expected on the back of downward price pressure stemming from a

deep-rooted deflationary mindset and corporate productivity improvements to

absorb higher costs.

--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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