MNI POLICY: BOJ Suzuki: Easy Policy Needed; Watch Side-Effects

     MITO, Japan (MNI) - Bank of Japan board member Hitoshi Suzuki said Thursday

that the BOJ needs to increase the sustainability of its easy policy as firms'

cautious wage- and price-setting stance will restrict price hikes long into the

future.

     Speaking to business leaders in Mito City, Suzuki added that households'

caution toward price rises will also restrict price rises ahead.

     Suzuki, former commercial banker who joined the nine-member policy board in

July 2017, also said that the BOJ should pay attention to the risk that an

economic slowdown will increase banks' credit costs, causing a worsening of

banks' profits.

     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 then 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."

     Other key points from Suzuki's speech:

     --The BOJ needs to increase the flexibility of easy policy, depending on

developments of the financial markets. It is important for the BOJ to change the

scale of its purchases of Japanese government bonds according to market moves,

he said, but didn't elaborate on how it would adjust the scale of bond buying.

     --Regional banks are increasing loans to middle-risk companies. "Looking

ahead, if the economy fell into recession, it would increase credit costs at

banks and increase the necessity for banks to increase loan-loss reserves, which

will sharply cause a worsening of banks' profits.

     --It's vital for the BOJ to maintain a current powerful easy policy for a

long period as Japan is still only half-way to achieving the 2% price stability

target.

     --However, the BOJ must pay attention to the side-effects of easy policy,

such as banks' aggressive risk-taking activities, and will adjust policy in an

appropriate manner.

     --The economic fundamentals for the global economy haven't changed

significantly, but the BOJ needs to keep a close eye on heightened downside

risks, including the risk of worsening economic fundamentals due to volatility

in financial markets. 

     --The momentum toward achieving the 2% price target is maintained, although

Japan's price moves are still weak. Upward pressure on consumer prices was

caused by the continued positive output gap for the eighth straight quarter.

--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

[TOPICS: MAJDS$,MMJBJ$,M$A$$$,M$J$$$]