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--Adds Comments From Press Briefing at bottom
     SHIMONOSEKI, Japan (MNI) - Bank of Japan Deputy Governor Masayoshi Amamiya
warned Thursday that the central bank must pay greater attention to accumulated
side-effects of easy policy than previously.
     "In order to persistently continue tight the current powerful monetary
easing, it is necessary to contain the accompanying negative effects, or the
side effects," Amamiya said. 
     Amamiya didn't outline an immediate need to change policy, saying, "The BOJ
will pursue powerful monetary easing while thoroughly examining both the
benefits and costs of its policy effects."
     "The BOJ will make policy adjustments as appropriate, taking account of
developments in economic activity and prices as well as financial conditions,
with a view to maintaining the momentum toward achieving the price stability
target," he added. 
     --"The economy is no longer in deflation, in the sense of a sustained
declines in prices." However, prices remain weak, compared with the economic
recovery and the labor market tightening.
     --"Even amid the economic expansion, there is a combination of various
factors that makes it difficult for wages and prices to rise. It has been taking
time to resolve these factors..."
     --"What is important is not temporary price fluctuations but the underlying
trend in prices." "Having said that, there is a possibility that people's
inflation expectations will move upward and downward in line with price
fluctuations, thereby affecting the underlying trend in prices."
     --"Giving due consideration to these points, the BOJ will assess future
price developments and communicate developments in such special factors to the
public in an appropriate manner."
     --Financial markets remain volatile on the back of high uncertainties over
the global economy. "Financial markets both at home and abroad have remained
     --"The BOJ will continue to carefully monitor developments in the domestic
and overseas markets, including the effects on firms' and households'
     --"The BOJ is fully aware that prolonged downward pressure on financial
institutions' profits, with the low interest rate environment and severe
competition among financial institutions continue, could create a risk of a
gradual pullback in financial intermediation and of destabilizing the financial
     When questioned, Amamiya told a press briefing that there are four tools
available to the BOJ, including lowering short- and long-term interest rates,
expanding asset purchases and accelerating the pace of increasing the monetary
base, although he didn't elaborate.
     He underlined that the BOJ still needed to conduct easy policy to maintain
momentum toward hitting the 2% price target. Amamiya noted a drop in prices to
be caused by special factors will not affect BOJ policy, but they must closely
monitor any impact of inflation expectations.
     When asked about the U.S. Federal Reserve's policy decision, leaving rates
unchanged, Amamiya said the move was aimed at supporting the U.S. economy, which
would help strengthen the dollar, which "in turn will be a good factor for
Japan's economy."
     He dismissed the suggestions that a narrowing interest rate gap between the
U.S. and Japan due to the Fed's decision will increase upward pressure on the
yen, saying, forex rates were decided by may factors, not just rate
     The Fed held rates steady Wednesday, signalling a move into a neutral
stance on further rate adjustments, citing muted inflation and ebbing global
growth as reasons to stay patient for the time being. The FOMC also abandoned
statement language pointing to "further gradual increases" in rates would be
consistent with economic objectives.
     Amamiya said that the BOJ needs to keep the output gap positive for as long
as possible. Last week, the BOJ's Outlook Report said the output gap "is
expected to remain substantially positive", which Amamiya indicated he sees as
around 1% or slightly higher.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
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