REPEAT: MNI: 5 THINGS: BOJ Sakurai: Watch Costs of Easy Policy

     MAEBASHI, Japan (MNI) - Bank of Japan board member Makoto Sakurai said

Thursday that the BOJ must not aim to achieve its 2% inflation target at any

cost, calling for a close watch on the side-effects of prolonged large-scale

monetary easing including overheating economic and financial conditions.

     At its latest policy meeting on Apr. 26-27, the BOJ board decided in an

8-to-1 vote to maintain its cautiously stimulative monetary easing stance under

the yield curve control framework while dropping its estimate on when it can

achieve the increasingly evasive 2% inflation target.

     The key points from Sakurai's news conference in the afternoon:

     -- When the BOJ conducts monetary policy, it must carefully watch the

side-effects of the aggressive easing that it began in April 2013. The

side-effects are not yet serious enough to prompt the BOJ to reduce the scale of

easing.

     -- For now, the BOJ must maintain the easy policy to support the modest

economic recovery with a positive output gap. Therefore, it is premature to

consider adjusting the easing stance.

     -- "Looking ahead, the cumulative effects of large-scale easing will

increase and we may face the situation in which we must examine the side-effects

of the easy policy."

     -- Sakurai didn't comment directly on whether the BOJ may reduce the scale

of its easing program before it achieves the 2% price target. He simply replied

that the BOJ must carefully watch the net effects of the easy policy.

     The key points of Sakurai's speech to business leaders in Maebashi City,

north of Tokyo, in the morning:

     -- The BOJ has been trying to anchor inflation around 2% at the earliest

possible time but this doesn't mean that the bank must achieve the target at any

expense.

     -- The BOJ needs to maintain the accommodative financial environment based

on the current policy framework but the bank must also pay attention to the risk

that prolonged aggressive easing may destabilize the financial system, which in

turn could restrict economic activity.

     -- The BOJ should maintain a "moderately tight supply-demand balance" for

the longest possible period to keep upward pressure on inflation but at the same

time, the BOJ must keep a close eye on a lopsided supply-demand balance, which

would cause a big swing in the economy.

     -- The stimulative effects of easing under the yield curve control policy

framework will increase over time as longer-term inflation expectations rise and

economic growth expands. At the same time, the move to boost supply amid labor

shortages and aging production facilities will raise the economy's growth

potential and push up prices in the longer term, although it is putting a lid on

growth and prices in the short term. Considering those two factors, the BOJ must

conduct "appropriate" monetary policy to prevent supply-demand conditions from

losing a moderately tight balance.

     -- Sakurai said it was inevitable for the board to decide to stop

publishing the estimated timeframe of hitting the 2% price target at its April

meeting because the BOJ was facing various uncertainties and market participants

had too much focus on the estimated timing as an indicator of the future course

of monetary policy. Nonetheless, the BOJ needs to carefully explain the

mechanism for a price increase and its risks in order to deepen communication

with the markets.

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