UPDATE 2-BOJ head keeps to easy stance, strong yen blurs outlook
* Finance minister resumes verbal warnings vs yen rise
* BOJ Shirakawa meets PM Noda for "frank" talks
* Govt maintains economic view, warns of China slowdown
By Leika Kihara
TOKYO, July 23 (Reuters) - The Bank of Japan will stick to an ultra-easy monetary policy, Governor Masaaki Shirakawa said on Monday, without telling whether further easing was planned, though the government warned that a strong yen and China's slowing growth posed risks to the economy.
Finance Minister Jun Azumi repeated a warning to markets, telling reporters on Monday that Tokyo was ready to take decisive steps against speculative and excessive rises in the safe-haven yen.
Japan's policymakers are increasingly worried about the impact of both slowing global demand on the export-reliant economy, and the yen's rise to more than an 11-year high against the euro.
For his part, Shirakawa stressed the central bank's resolve to maintain powerful monetary easing until 1 percent inflation was in sight, but countered the view held by some lawmakers that it was not expanding its balance sheet aggressively enough to support the economy.
"The key purpose of our policy is to push down corporate borrowing costs," Shirakawa told a parliamentary committee.
"There is now a consensus among major central banks that when interest rates are zero, simply expanding the central bank's balance sheet won't boost the economy."
The governor also said that the BOJ was already boosting Japan's monetary base enough via asset purchases, and that its ultra-loose policy must be accompanied by structural reforms and long-term policies to boost Japan's growth and escape deflation that has gripped the economy for more than a decade.
YEN RISE AGAIN THE TRIGGER?
Shirakawa was summoned to speak in parliament hours after meeting with Prime Minister Yoshihiko Noda. It was the first meeting they had held since April, and Shirakawa declined to disclose what was discussed. The two exchange views on the economy from time to time, but there is no set schedule for their meetings.
In the past year, Japanese lawmakers have repeatedly pressured the BOJ to ease policy as the nation struggled with a strong yen, and the central bank has subsequently taken action.
The BOJ set a 1 percent inflation target and eased monetary policy via an increase in asset purchases in February, and followed up with another easing in April to show its resolve break free of deflation.
The central bank held off on further easing since then despite slowing global growth that has driven other major central banks to loosen monetary policy.
BOJ officials are counting on spending for reconstruction from last year's earthquake to support growth, and argue that further easing will be necessary only if risks to the outlook heighten enough to derail the economy's recovery prospects.
Japan's core consumer prices fell 0.1 percent in May from a year earlier, marking the first drop in four months in a sign that the central bank's 1 percent inflation goal remains elusive. Data due out on Friday is expected to show core consumer prices were flat in June from a year earlier, a Reuters poll showed.
In a monthly report, the government stuck to its assessment that Japan's economy continues to recover led by robust consumer spending, roughly in line with the central bank's view that the economy is starting to pick up.
But the government reinforced its warning about the slowdown in U.S. and Chinese growth as exports start to slow.
"The economy is moderately recovering helped by reconstruction demand, although difficulties continue to prevail," the Cabinet Office said in the July report.
Japan's economy is expected to outperform most other developed nations this year thanks to solid domestic demand, but analysts have slashed forecasts for factory output as the slowdown in external markets becomes more pronounced.
The world's third-largest economy is set to grow 2.2 percent in the year to next March, according to a Reuters poll of economists, slightly slower than the 2.3 percent pace seen in a similar survey in June.
The BOJ, which next meets for a policy review on Aug. 8-9, hopes to save its limited ammunition to help the economy for as long as possible, although some market players say continued yen rises could nudge the central bank into acting again.
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