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By Hiroshi Inoue 
     TOKYO (MNI) - Kozu said the BOJ could also do a better job in another key
area: closer communication with market participants before it actually starts
raising rates.
     "In order to deepen communication with market participants, the BOJ will
need to get them to understand its policy intention behind rate movements," he
     "Given the current economic recovery, one tool that the BOJ can use is to
keep the 10-year target around zero percent while allowing market interest rates
to fluctuate (widely) in order to revitalize the markets and increase the
flexibility of the easy policy," Kozu said.
     Before raising rates, the BOJ could prepare the markets by hinting what to
expect in the minutes of its policy meetings and monetary policy statements, he
     He also said the yield curve control policy has caused undesirable effects,
such as distortion of the market price mechanism, downward pressure on banks'
profits and excessive lending to individuals building apartments in an often
oversupplied housing market.
     Kozu said those side-effects are not yet serious enough to prompt the BOJ
to reduce the degree of its aggressive easing in place since April 2013.
     But Kozu warned of the side-effects of prolonged BOJ purchases of ETFs
(exchange-traded funds) and J-REITs (real estate investment trusts), which have
been distorting the price mechanism of those securities.
     "It might be too late but the BOJ should separate those asset purchases
from the monetary policy aimed at achieving the 2% inflation target," he said.
     To avoid triggering a stock market sell-off, the BOJ could sell some of its
ETF holdings to the Government Pension Investment Fund, another dominant buyer
of stocks, Kozu said.
     Critics said the Abe government has been using both the GPIF and the BOJ to
lift stock market prices, a lifeline for Prime Minister Shinzo Abe who has so
far failed to keep his 2012 election promise to anchor inflation around 2% and
revitalize the economy through structural reforms.
     Kozu said the BOJ's decision last month to stop publishing the estimated
timing of hitting the 2% inflation target isn't consistent with its stance that
it is committed to achieving the target.
     However, he said, the decision is appropriate as it will enable the BOJ to
conduct policy adjustments before achieving the 2% price target.
     "Now that the BOJ is not stuck with the timeframe of achieving the 2% price
target, it can manage monetary policy more flexibly as it may face the need to
reduce the degree of the easy policy before achieving the 2% price target," Kozu
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email:

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