REPEAT: MNI: BOJ Wakatabe: Caution Over Action To Burst Bubble

Repeats Story Initially Transmitted at 01:42 GMT Oct 25/21:42 EST Oct 24

     TOKYO (MNI) - Bank of Japan Deputy Governor Masazumi Wakatabe said Thursday

that if a central bank took strong measures to burst an asset bubble, it would

push the economy into a serious recession.

     "The central bank should not ignore asset price fluctuations completely,

but there are still discussions, regarding whether to tighten monetary policy as

a pre-emptive measure against a rise in asset prices," Wakatabe said at

symposium on innovation at Keio University in Tokyo.

     Wakatabe has said that serious side-effects of a prolonged easy policy

haven't been observed, indicating the BOJ doesn't need to adjust tits policy to

mitigate against side-effects.

     Other key points from Wakatabe's speech;

     --"In the event of a financial crisis, ex post policy response becomes

extremely important." "As downward pressure is exerted on the economy in the

wake of the crisis, it will be necessary to respond with vigorous expansionary

macroeconomic policies," Wakatabe said, adding, "If the response is inadequate

or delayed, the economy will fall into deflation and face difficulty escaping

from it."

     --"It has become clear that an excessive rise in asset prices above

fundamentals -- the emergence of the bubble economy -- and its collapse

triggering a financial crisis will exert a considerable negative impact on the

economy."

     --Regarding a financial crisis, however, there is no better way than to

prevent it. In doing so, ex ante and ex post financial regulation -- monitoring

excessive risk-taking behavior of financial institutions and setting up a

resolution mechanism -- as well as macroprudential policy -- analyzing and

assessing systemic risk in the financial system as a whole and taking policy

measures based on it -- play key roles.

     --The latest Financial System Report, released by the BOJ Monday said, "It

has become increasingly important to accurately assess financial vulnerabilities

amid the prolonged low interest rate environment."

     --It also warned that financial institutions' core profitability is falling

and regional banks' capital adequacy is falling.

--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