Trial now

Outlook Remains Bullish


Corrective Cycle

--Adds Comments From Briefing in Paragraphs 4-8
     AKITA, Japan (MNI) - It is appropriate for the Bank of Japan to maintain
its current powerful easy policy while paying attention to developments of both
the stability of the financial system and economic conditions, board member
Makoto Sakurai said Thursday.
     "It's important for the BOJ to examine the side-effects of easy policy and
to keep the sustainability of the easy policy," Sakurai said in a speech to
business leaders in Akita City, northern Japan.
     At the BOJ's previous policy meeting on Sep 18-19, the board decided in a
7-2 vote to maintain its current monetary easing stance under the yield curve
control framework, vowing to keep very low interest rates "for an extended
period of time."
     Sakurai told reporters that it will take time to achieve the BOJ's 2% price
target as structural problems are restricting price rises. But he sees no need
to change the 2% price target and no need to take additional easy policy
measures now.
     "It is important for the BOJ to maintain the current easy policy and it
isn't necessary to take additional easy policy amid increasing uncertainty over
price moves," Sakurai said.
     "It is difficult to predict the timing of achieving the 2% price target" as
price moves aren't determined by the output gap alone.
     When asked about the drop in the Nikkei stock index, which closed at
22,590.86 Thursday, down 915.18 points, or 3.89%, Sakurai said that the BOJ must
watch how the drop in the Nikkei stock index affects consumer and business
     Other key points from Sakurai's speech:
     --Sakurai, an advocate of the idea that the BOJ must keep a close eye on
the side-effects of easy policy, warned, "Maintaining the easy policy to achieve
the price stability target will cause a risk the financial and economic
imbalances accumulate."
     --Low interest rates will lower banks' profits and undermine banks' capital
bases, which in turn will accelerate banks' risk-taking activities. If banks'
assets worsened, it would impair banks' ability to maintain businesses, which
worsen functioning in the financial system.
     --The BOJ must examine financial imbalances and manage monetary policy in
an appropriate manner, he said, without elaborating how the BOJ addresses the
risks its facing now.
     --It isn't appropriate to widen the economy's output gap too much to boost
prices, as such a move would increase economic imbalance and undermine the
stability of the financial system.
     --With uncertainty over price moves increasing, the BOJ should take time to
maintain the easy policy under the forward guidance policy framework, while
paying careful attention to the accumulated side-effects of easy policy.
--Sakurai also voiced concern over increasing uncertainties regarding the
outlook for the global economy and over downside risks from trade disputes and
fund outflows from emerging economies.
     --Sakurai gave an optimistic outlook for Japan's economy, but warned of the
risk that Japan's economy may deviate from the baseline scenario, depending on
the degree of shock caused from protectionism and emerging economy fund
     --On inflation rates, Sakurai said Japan's price moves are weaker than
initially expected on the back of downward price pressure stemming from a
deep-rooted deflationary mindset and corporate productivity improvements to
absorb higher costs.
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