REPEAT:MNI 5 THINKS:BOJ Masai: Keep Easing Policy, Watch Costs

--Board Member Also Calls for Close Watch on Sales Tax Hike Impact

     MATSUMOTO, Japan (MNI) - Bank of Japan board member Takako Masai said

Thursday that it is appropriate to maintain large-scale monetary easing because

it takes time to achieve the 2% inflation target.

     But in her speech to business leaders in Matsumoto City, central Japan, she

also warned against the costs of prolonged easing, saying the BOJ must carefully

watch the developments in economic, price and financial conditions.

     Masai also cautioned that the sales tax hike scheduled in October 2019

could have a "significant" impact on pensioners, although the BOJ has estimated

that the drag from the tax hike should be smaller than the impact of the

previous hikes, in 2014 and 1997.

     Later she told a news conference, "We have to watch both the benefits and

costs of easy policy more closely than before."

     Asked what the central bank should do if the side-effects of prolonged

easing become more serious, Masai replied, "It is difficult to forecast the

outlook for monetary policy because it is up to the developments in economic and

price conditions at that time."

     Masai said she is "not pessimistic" about future price moves because the

recent improvement in the output gap is keeping the upward momentum alive. "It

takes time before inflation expectations rise but they are not falling," she

said.

     At its latest policy meeting on June 14-15, the BOJ board decided in an

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

the yield curve control framework.

     The key points from Masai's speech:

     -- Since the release of the bank's quarterly Outlook Report in April, data

have shown consumer price gains have been slightly weaker than expected but the

momentum toward achieving the 2% price stability target is "maintained."

     -- The BOJ's aggressive monetary easing has produced intended effects but

consumer prices still lack upward momentum, compared with a steady improvement

in the economy. Therefore, the BOJ must "continue with strong monetary easing in

a persistent and sustainable manner, while being more careful than ever when

examining developments in economic activity and prices as well as financial

conditions."

     -- As for the conduct of monetary policy, the BOJ "needs to take the impact

on the intermediation in the financial markets and functioning in markets into

consideration" and it also needs to pay attention to the fact that "the bold

easy policy is lowering banks' profits from lending."

     -- Japan needs to "fully overcome" years of deflation by achieving the 2%

inflation target, a global standard. Achieving stable 2% inflation in Japan and

other economies "will bring stability of exchange rates in the long run, and

ultimately the stability of financial markets and corporate activities."

     -- The BOJ estimated in April that the net burden on households around the

time of the sales tax hike from 8% to 10% planned in October 2019 would be

"smaller than that of the two previous hikes (in 2014 and 1997). But there is

"inevitably considerable uncertainty" because the impact on the sentiment of

households may differ significantly according to their financial conditions.

     The sentiment of households whose main source of income is wages is

expected to remain reasonably firm while households whose main source of income

is pensions are expected to be "significantly affected" by the higher costs for

daily necessities, although there are plans to implement measures to mitigate

the burden.

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