BOJ gov: Focus on prices could delay policy move

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TOKYO, May 28 (Reuters) - Bank of Japan Governor Masaaki Shirakawa said on Wednesday that central banks need to look not only at inflation but broadly at economic conditions when conducting monetary policy.

"If we focus narrowly on the current observed inflation rate, there is a risk that necessary monetary policy adjustments might be delayed," Shirakawa said in a speech to a conference hosted by the BOJ.

His remarks come after the central bank opted to keep its monetary policy unchanged at a policy board meeting last week, despite decade-high inflation, citing an uncertain global economic outlook and soaring energy and raw material prices as a reason behind its decision.

Japan's nationwide consumer price index (CPI) rose 1.2 percent in March from a year earlier on rising energy costs. The pace of the rise was the biggest since a 1.8 percent increase in March 1998. [ID:nL2593916]

Citing the late economist Milton Friedman, who taught Shirakawa at the University of Chicago, the BOJ chief said monetary policy is broader than just "interest rate policy aiming at price stability".

Shirakawa said Japan's bubble economy in the 1980s and its subsequent bursting were evidence of complicated and delicate correlations between monetary policy and other economic dynamics.

There were some similarities between Japan's experience and the current financial turmoil in the United States and Europe, he said.

"Based on Japan's experience, how the negative feedback loop of tighter financial conditions, a decline in asset prices, and the deteriorating real economy will evolve could be key to the future course of the economy." (Reporting by Yuzo Saeki, Editing by Michael Watson)