MNI POLICY: Ex-BOJ Aide: Easing Not Needed; But May Cut Rate

     TOKYO (MNI) - There is no immediate need for the Bank of Japan to conduct

further easing, but the BOJ will likely deepen its short-term policy interest

rate further into negative territory as a precautionary move against the

accumulating risks facing Japan's economy, former Deputy Governor Hirohide

Yamaguchi said Tuesday 

     "The already-implemented easing by the BOJ has produced side-effects and I

think it doesn't need to conduct further easing, which in turn will further

increase side-effects," Yamaguchi, now chairman of the Advisory Board at Nikko

Research Center told reporters.

     Although emphasizing the positive benefits to both the economy and

financial markets if the BOJ don't conduct further easing, Yamaguchi said that

there is the possibility that the central bank cuts its short-term interest rate

further into negative territory, following easing by the European Central Bank

and possibly the Federal Reserve.

     Yamaguchi didn't comment directly on the outcome of the BOJ's two-day

policy-setting meeting that starts on Wednesday, but he said the hurdle is very

high that it won't conduct further easing under existing conditions.

     He is skeptical over the view that the central bank can normalize its

monetary policy without causing a "crush" in the economy and financial markets,

as the policy has already accumulated various side-effects.

     The BOJ purchases of ETFs (exchange traded-funds) and of JGBs (Japanese

government bonds) have already distorted their markets, he added. He warned

though that if the BOJ decided not to conduct further easing, it would push up

interest rates, strengthen the yen and lower stock prices, which in turn could

send the economy into recession.

     Therefore, it is better that the BOJ avoids excessive moves in financial

markets and weakening the economy by conducting further easing, Yamaguchi said,

although he warned that it should keep a watchful eye on the Nikkei and certain

real estate prices and act to avoid the formation of "bubbles".

     Yamaguchi also warned that financial risks, such as asset prices and the

debts, are accumulating in the U.S. and those risks could break from late 2019

to 2020. If global financial markets destabilized sharply, it would worsen

Japan's economy through three routes; exports, financial system and a vicious

cycle from the financial market to real economy, he said.

--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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