UPDATE: MNI: BOJ Sakurai: Side-Effects Vital Point On Policy

--Adds Comments From Briefing in Paragraphs 5-11

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

Thursday that the side-effects of a prolonged easy policy will be an extremely

important issue regarding monetary policy.

     "It is vital for the BOJ to manage its monetary policy appropriately, while

examining both favorable effects and side-effects, including the accumulated

financial imbalances," Sakurai told business leaders in Shizuoka City.

     However, Sakurai sees no imminent need to mitigate the side-effects and to

unwind the easy policy and said the BOJ needs to patiently maintain the current

easy policy to keep the positive output gap and to support the economy.

     "It isn't desirable for the BOJ to conduct additional easy policy for the

reason of a delay of price rises, judging from the balance of the side-effects

of a prolonged easy policy," Sakurai said.

     Sakurai told reporters that the BOJ must carefully watch how Japan's

economy evolves when the consumption tax will be raised in October as the

economy is in a delicate stage now.

     When asked about the impact of the recent drop in the Nikkei stock index

and volatile financial markets on Japan's economy, Sakurai said that more time

is needed to see how Japan's economy has been affected.

     As for additional easy policy, Sakurai said, "We will need to consider

possible policy tools beyond the existing (ones)" but didn't elaborate on what

the BOJ could do.

     Sakurai also said at a news conference that the BOJ "must broadly examine

the side-effects of a prolonged easy policy" as the Financial System Report is

increasing its warning against them.

     Sakurai also told reporters that the BOJ doesn't need to change the 2%

price target as the central banks in advanced economies are aimed at achieving

the same.

     But he indicated that the BOJ could change its 2% target if the achievement

of the 2% target as the global standard changed.

     "Price rises are restricted by several factors, such as an increase of

productivity. But it isn't bad thing. We don't need to be pessimistic about it

and the important issue" is how the BOJ can keep the momentum toward hitting the

2% price target.

     The BOJ board at the April 24-25 policy meeting decided to clarify its

stance of maintaining the current power easy policy, saying the BOJ will keep

extremely low interest rates "at least through around spring 2020", having

previously said that it would keep the easy policy "for an extended period of

time."

     At the meeting, the BOJ kept monetary policy unchanged, as Japan's economy

is still expanding moderately despite persisting downside risks to both activity

and prices.

     The BOJ board's median forecast for inflation in fiscal 2021 is +1.6%,

indicating that the 2% price stability target will not be achieved over its

projection period, the BOJ quarter Outlook Report released Thursday showed.

     But the policymakers maintained the view that the momentum towards

achieving the 2% price target is maintained.

     Other key points from Sakurai's speech:

     --Sakurai pointed to the three factors that the BOJ must pay attention

regarding the conduct of monetary policy; the impact of the slowing global

economy on Japan's economy, increasing uncertainty over price rise mechanism and

the balance of effects and side-effects of a prolonged easy policy.

     --Uncertainties over Japan's economy are large and the big factors that

influence are developments of overseas economies, especially China, and the

domestic consumption tax hike to 10% from 8% planned in October.

     --Sakurai, however, said that the impact of the sales tax hike on the

economy will be limited as the government has already decided measures to

mitigate the negative impact on consumer spending.

     --But Sakurai warned, "downward pressure on Japan's economy will grow if

the slowdown of overseas economies continues at that time."

     --"The improving output gap in positive territory essentially increases

upward pressure on consumer prices but there is no sign of suggesting price

rises."

     --Upward pressure on Japan's prices is being restricted by several factors,

including weak wage hikes and the deflationary mindset. As a result, the price

rises are slow despite the improving output gap.

     --If corporate retail price hikes are delayed, it will further take time to

achieve the price stability target.

     --There is a limit that firms increase their productivity to absorb high

costs and the BOJ needs to keep the positive output gap, which in turn will lead

to the price stability target.

--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

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