BOJ should clarify asset buying plan beyond 2014 -IMF

TOKYO Thu May 29, 2014 11:33pm EDT

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TOKYO May 30 (Reuters) - The Bank of Japan should provide more information about its asset purchases beyond end-2014 to enhance transparency of its policy, the International Monetary Fund said on Friday.

With Japan making steady progress in accelerating inflation, the central bank does not need to expand stimulus further now and should preserve its policy space to address future downside risks, the IMF said in its concluding statement after its annual Article 4 meeting with Japanese officials.

"However, the current aggressive pace of monetary easing may need to be maintained for an extended period, suggesting that providing more information about asset purchases beyond end-2014 could further enhance transparency," it said.

While the BOJ's stimulus is delivering anticipated effects, Japan will see consumer inflation reach 2 percent by 2017, later than envisaged by the central bank, because the narrowing of the output gap and heightening of inflation expectations will be more gradual than BOJ projections, the IMF said.

The BOJ deployed an intense burst of monetary stimulus in April of last year, pledging to double base money via aggressive asset purchases to achieve its 2 percent inflation target in roughly two years.

BOJ Governor Haruhiko Kuroda has voiced confidence that the central bank's price target will be met sometime next year.

The central bank has disclosed the pace of asset purchases for meeting its balance sheet target up to the end of this year, but has been silent on whether that pace will be maintained beyond next year for fear of binding its hands on future policy.

The BOJ should act quickly if inflation or inflation expectations stagnate, or if economic growth disappoints, the IMF said, adding that possible options include expanding purchases of private assets or government bonds, or further lengthening the maturities of assets it purchases, the statement said.

Another option would be to expand a separate funding scheme the BOJ has in place to encourage financial institutions to boost lending by offering cheap, long-term funds, the IMF said.

The global lending institution, however, warned of the risks of overburdening monetary policy and said that when an exit from the ultra-loose monetary policy comes into sight, the BOJ should clarify the conditions under which it will determine that its price target has been achieved. (Reporting by Leika Kihara; Editing by Edmund Klamann)

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