HIGHLIGHTS-BOJ Governor Kuroda comments at news conference

TOKYO Wed May 21, 2014 4:05am EDT

TOKYO May 21 (Reuters) - The Bank of Japan kept monetary policy steady and raised its assessment on capital expenditure on Wednesday, reassured by growing evidence the economy can withstand the pain from a sales tax hike without additional monetary stimulus.

Following are comments from BOJ Governor Haruhiko Kuroda at his post-meeting news conference:

MONETARY POLICY

"Our quantitative easing policy is exerting its intended effect. The Bank of Japan will continue with this policy until the 2 percent target is achieved in a sustained manner."

"Japan's economy is recovering moderately but is halfway to its 2 percent price target, so the Bank of Japan will continue its QQE policy."

"With regard to the connection to monetary policy, we are not thinking about policy in terms of a linkage to the foreign exchange or stock market. Basically, as with many other central banks, we have set a price stability target and are making efforts to achieve it."

"We won't guide monetary policy for the purpose of influencing currency rates ... We won't guide monetary policy based on what other central banks do."

MARKETS

"On the other hand, the U.S. economy is doing pretty well and so monetary policy is in the phase of tapering. When you take into account such domestic and external economic developments, as well as market moves, there is no reason why the yen should strengthen."

"I don't think liquidity in the JGB market is falling sharply, or that transactions aren't going smoothly, or that pricing isn't conducted appropriately."

"Long-term interest rates are affected by various factors, including the BOJ's JGB buying, changes in market participants' inflation expectations and overseas long-term rate moves. I shouldn't comment now specifically on how bond yields will move in the future.

"If I say too much on that subject, that can be interpreted as offering forward guidance on interest rates."

ECONOMY

"Most of the wage negotiations have concluded, which shows that not only big firms but smaller firms are raising wages including regular pay. Improvements in job market conditions are continuing."

"There's no change to our view, shown in the twice-yearly outlook report, that the impact of the tax hike will diminish around summer onward."

"The potential growth rate isn't fixed and fluctuates on various factors. For instance, it can be increased through policy efforts. We shouldn't consider it as something fixed."

GROWTH CYCLE

"When we reach the 2 percent price stability target our economy should be in a positive cycle with regard to productivity and income and experiencing balanced growth, including wage growth. That's desirable and in order to achieve that we are continuing our policy of quantitative easing and looking to break the deflationary psychology.

"We're currently seeing a tightening of the labour market and a more certain pressure toward higher wages and improved corporate profitability. I think that's evidence of the positive cycle at work but for the purpose of raising growth over the medium- and long-term we need to see three things.

"First, we need to see companies positive about new investment. Second, we need to see more women and older people in the work force, along with foreign workers who have special talents to strengthen the work force. Third, we need to see government reforms to raise productivity in the economy." (Reporting by Leika Kihara, Stanley White and Tetsushi Kajimoto; Editing by Chris Gallagher)

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