REPEAT: BOJ Masai: Maintain Easing Toward 2% Inflation Target

Repeats Story Initially Transmitted at 03:10 GMT Aug 31/23:10 EST Aug 30

--Adds Details From 10th Paragraph

     MATSUYAMA, Japan (MNI) - The Bank of Japan must continue implementing

monetary easing to secure the path toward its increasingly evasive 2% inflation

target and inform the public what is preventing the bank from reaching the goal,

board member Takako Masai said Thursday.

     In a speech to business leaders in Matsuyama City, western Japan, Masai

said she is aware or the criticism of the central bank as it has delayed its

estimated timing for reaching the target several times since it began aggressive

easing more than four years ago.

     "The bank certainly aims to achieve the price stability target of 2% at the

earliest possible time, and the delay in such timing is not desirable," she

said.

     "However, what I believe is important for the bank is -- in the event that

the 2% price stability target cannot be achieved due to economic and price

developments at the time -- to thoroughly explain the reasons behind the target

not being achieved and to implement monetary policy so that the economy will

follow a path toward the target."

     She added that the policy framework of inflation targeting is also expected

to "perform the role of a communication tool."

     Masai repeated the bank's official line that there are brighter spots in

the economy that are likely to turn around the stubborn deflationary mindset

among households and businesses.

     "There is still a long way to go to achieve the price stability target of

2%. Nevertheless, my view is that the momentum toward achieving the target has

started to steadily increase."

     Masai joined the nine-member BOJ policy board in June 2016 after serving as

an executive officer overseeing market research at Shinsei Bank.

     At its latest policy meeting on July 19-20, the BOJ board decided to leave

its monetary policy unchanged in a seven-to-two vote, retaining the yield curve

control target it adopted in September last year, while pushing back its

estimate for achieving its 2% inflation target by a year until "around fiscal

2019." It was the sixth delay since April 2013 when the bank launched aggressive

easing.

     Among the brighter spots in the economy, Masai noted base wages have

largely continued to rise for two years, even thought the rise has been modest.

     The latest government data show base wages, the key to a recovery in total

cash earnings per employee, rose 0.5% in June from a year earlier, the third

straight year-on-year rise and the 11th gain in the past year. On an annual

basis, base wages rose 0.2% in calendar 2016,   the second consecutive increase

after +0.3% in 2015.

     As base wages have been rising steadily at small businesses, which employ

70% of the workforce, a clearly increasing number of households can now feel

that their wages actually have been rising, Masai argued.

     "This is highly important in terms of raising people's inflation

expectations," she said.

     Masai also pointed to a "growing impetus" toward raising productivity, due

in part to labor shortages.

     "Investment that serves a positive purpose -- such as that in

efficiency-improving and labor-saving machinery and equipment, and in research

and development for growth areas -- is expected to further rise, and this will

likely contribute to improving productivity," she said.

     The BOJ's initiatives to maintain highly accommodative financial conditions

and ensure the overcoming of deflation will continue to foster positive

developments among firms, she added.

     "In my view, this will lead to improvement in productivity and ultimately

to a rise in the potential growth rate," she said.

     As for the yield curve control policy that the BOJ adopted last September,

Masai said, "The current framework ... is designed to amplify monetary easing

effects when the outlook for economic activity and prices improves."

     "In that case, there would be upward pressure on interest rates in

accordance with such improvement. The degree of monetary easing will increase if

the BOJ contains such upward pressure and thereby maintains the shape of the

yield curve."

     Masai said a rise in women's labor participation rate would help ease

severe labor shortages in some sectors that are missing out on business

opportunities or facing rising labor costs.

     "Japan's economy currently faces severe labor shortages, and a worsening of

this situation is inevitable amid the further decline in the working-age

population," she said. "Women continue to constitute a considerably large

potential labor force."

     "In addition to the impact on labor supply of women's participation in the

workplace, improving firms' competitiveness through the promotion of such

participation will become more important," Masai added. 

     In the process of promoting women's participation in the workplace,

business efficiency has improved by reducing long working hours and promoting

labor-saving investment, she said.

     The Organisation for Economic Co-operation and Development estimates that

if women's labor participation rate in Japan were to remain the same over the

next 20 years, the labor supply would contract by 17%, she noted.

     But if women's participation rate were to converge with that of men over

the next 20 years, the fall in labor supply would be limited to 5% and as a

result, Japanese GDP would increase by almost 20% over the two decades, she

said, quoting the OECD's estimate.

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

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com