UPDATE 1-IMF says BOJ inflation target likely to take more than 2 yrs

Thu Jan 23, 2014 12:26am EST

* IMF: No new easing needed as long as prices rising

* IMF: BOJ exit is distant, many options available

* Many economists doubt BOJ can reach price target in 2 yrs

By Stanley White

TOKYO, Jan 23 (Reuters) - Japan's economy is likely to take longer than the two-year official timeframe to reach the central bank's 2 percent inflation goal even though prices are rising steadily, an International Monetary Fund official said on Thursday.

As long as progress is being made, there is no need for the Bank of Japan to expand its quantitative easing programme, under which it buys government debt and risk assets, Deputy Managing Director Naoyuki Shinohara said at a seminar in Tokyo.

BOJ Governor Haruhiko Kuroda has expressed growing confidence that consumer prices will reach the goal in two years, although comments from the IMF highlight the considerable scepticism among private sector economists.

"As long as steady progress is being made toward the 2 percent inflation target, we do not see a need for additional monetary accommodation," Shinohara said, according to the text of a speech.

"But communication will need to focus on managing expectations as it will likely take more than two years."

Prime Minister Shinzo Abe has promised to overcome 15 years of deflation during which companies and households held off on spending on the assumption that prices would not rise.

The BOJ overhauled monetary policy last April, pledging to increase base money at an annual pace of 60-70 trillion yen ($577-$673 billion) with asset purchases to reach 2 percent inflation in roughly two years.

The expanded quantitative easing has had some success, helping to lift inflation about 1 percent.

However, many economists argue that moving to 2 percent will take more time, partly because of concerns that wages will be slow to rise.

Once inflation expectations are anchored around the BOJ's 2 percent inflation target, the central bank will need to communicate clearly about its exit strategy to avoid market turmoil, Shinohara said, according to the speech text.

The BOJ does have a few options to scale back its quantitative easing, Shinohara said.

The central bank can allow its holdings of short-term debt to shrink naturally as the securities mature. It could then slow purchases of longer-term debt and eventually raise the interest it pays to commercial banks who park reserves at the central bank as a way to mop up liquidity, Shinohara said in the speech.

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