BOJ Shirakawa: Europe crisis risks further yen rise

TOKYO, July 20 Thu Jul 19, 2012 10:46pm EDT

TOKYO, July 20 (Reuters) - Europe's sovereign debt crisis poses risks to Japan's economy because it could lead to a further appreciation of the yen as investors seek relatively safe assets, Bank of Japan Governor Masaaki Shirakawa said on Friday.

Europe's debt crisis could also weigh on Japan's exports, lead companies to delay capital spending and destabilise the financial system, Shirakawa said in parliament.

It is possible for Japan's consumer prices to rise by 1 percent not long after the fiscal year starting in April 2014 as the output gap gradually narrows, Shirakawa told the upper house special committee on tax and welfare reform.

The BOJ set the 1 percent inflation target and eased policy in February, and followed up with additional stimulus in April, to show its determination to hit that goal and overcome the deflation that has stifled the economy for much of the past two decades.

At its latest policy meeting, the central bank held off on further policy easing last Thursday despite slowing global growth that has driven other major central banks into expanding stimulus, convinced that robust domestic demand will keep Japan's economic recovery on track.

The central bank forecast that the consumer price index, excluding fresh food, will rise 0.7 percent in the fiscal year from April 2013.

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