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     TOKYO (MNI) - Bank of Japan board member Yukitoshi Funo said Wednesday that
the central bank's effort to achieve its 2% inflation target, which it sees as a
global standard, should help stabilize foreign exchange rates.
     Funo also repeated that the BOJ must continue its monetary easing program.
     "Judging from the current economic, financial and price conditions, it is
vital for the BOJ to push ahead with aggressive easing under the current policy
framework," Funo said in a speech to business leaders in Miyazaki City,
southwestern Japan.
     The BOJ aims to achieve 2% inflation, not a lower target such as 1%,
because consumer price statistics have an upward bias compared to actual prices,
Funo said.
     In addition, a lower inflation target could adversely affect the currency
market, Funo warned. BOJ officials have said if the BOJ targets a 1% inflation
rate while other major central banks are trying to anchor inflation around 2%,
it could cause the yen to appreciate, hurting exporter profits and thus domestic
     "Major central banks are conducting monetary policy to achieve inflation
around 2%. Therefore, if the BOJ aims to achieve 2% inflation, it will
contribute to stabilizing foreign exchange rates in the longer term, and then
corporate activities," said Funo, a former Toyota Motor executive.
     When the time is right, the bank needs to guide nominal interest rates
higher in line with price rises so that it can cut interest rates in the future
when it needs to stimulate the economy, he said.
     At its latest policy meeting on Oct. 30-31, the BOJ board decided in an
8-to-1 vote to maintain its current monetary easing stance under the yield curve
control framework it adopted in September last year.
     In addition, recent weak price data prompted the board to lower its
projections for consumer prices in fiscal 2017 and 2018, but the BOJ stuck to
its latest timeframe that it can achieve its 2% inflation target "around fiscal
2019" ending in March 2020.
     Under the yield curve control framework, the BOJ is seeking to stabilize
the 10-year government bond yield, the benchmark for long-term borrowing costs,
at around zero percent and keep the overnight interest rate at -0.1%.
     Funo also said the momentum toward achieving the 2% price stability target
has been firmly maintained.
     "The year-on-year change in the consumer price index (excluding fresh food)
is expected to rise toward 2% but Japan is still far from achieving the price
target," he said.
     If a rise in inflation expectations becomes clear, it would entice firms to
raise base wages, leading a gradual pickup inn the pace of wage hikes for
regular workers, he said.
     At the same time, the BOJ must pay attention to the risk of companies
remaining cautious about wage hikes, he added.
     Medium- to long-term inflation expectations are expected to rise because
the BOJ is committed to achieving the 2% price target by continue its easing
program, he said.
     "But depending on developments in corporate price-setting behavior, we
might see some goods that are not sensitive to [an improvement in] the output
gap. We must also pay attention to the possibility of a delay in the rise in
inflation expectations," Funo said.
     To achieve the BOJ's inflation target, it is important to increase Japan's
growth potential, which is estimated by the BOJ to be about 0.8%, he added.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email:
--MNI BEIJING Bureau; +1 202-371-2121; email:

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