* BOJ Shirai sticks to view economy headed for recovery
* Sees risks on prices tilted toward downside
* Adds natural, desirable for JGB yields to gradually rise
* BOJ carefully watching market moves - Shirai
By Leika Kihara
Asahikawa, JAPAN, June 13 The Bank of Japan
expects bond yields to stabilise over time with its flexible
market operations and massive asset purchases, a central bank
policymaker said, signalling that it has no immediate plans to
take fresh steps to calm volatile markets.
Sayuri Shirai, a former IMF economist who is among the BOJ's
nine board members, said it was natural and desirable for bond
yields to gradually rise in the next two to three years on
prospects of an economic recovery and rising prices.
She also said the central bank already has sufficient tools
in place to deal with the market volatility, suggesting that she
saw no need to extend the maximum duration of funds the BOJ
offers in market operations from the current one year - an idea
that was debated but not approved at a rate review on Tuesday.
"The BOJ will continue to closely monitor market
developments. With flexible market operations, taking into
account discussions with market participants, the BOJ expects
both short and long-term interest rates to move stably as a
whole," she told business leaders in Asahikawa, northern Japan.
The BOJ kept monetary policy steady on Tuesday and held off
on new measures to quell bond market turbulence, judging that
its massive monetary stimulus in April was sufficient to revive
the stagnant economy and pull it out of chronic deflation.
The decision contributed to a sharp sell-off in global
equities, including Japanese shares, as the prospect of less
stimulus from central banks - particularly from the U.S. Federal
Reserve - depressed sentiment.
Shirai sounded unfazed by the yen's rebound and sharp falls
in Japanese equities on Thursday, saying that while the BOJ will
keep an eye on market moves, the effect of its massive asset
purchases will heighten over time.
"It's true volatility is heightening in the stock market ...
and I hope stock prices will stabilise," Shirai told a news
conference after meeting business leaders.
"We'll proceed with the monetary easing steps already
decided, which should offer support (to the economy)."
The dollar fell more than 2 percent to below 94 yen on
Thursday, giving up most of its gains after the BOJ's aggressive
monetary easing campaign announced on April 4, on uncertainty
over when the U.S. Federal Reserve will taper its bond-buying
The Nikkei share average also dived more than 6 percent,
wiping out gains since the BOJ's April easing, a potentially
unwelcome development for Prime Minister Shinzo Abe's bold
monetary and fiscal stimulus that relies heavily on boosting
consumer sentiment to revive the world's third-biggest economy.
ECONOMIC RECOVERY INTACT
Japan's economy grew an annualised 4.1 percent in the first
quarter thanks to Abe's bold stimulus policies and the weak yen,
which boosts the competitive advantage of the country's goods.
The recent market volatility may cloud Japan's growth
prospects, although Shirai stuck to the BOJ's view that the
economy will resume a moderate recovery around mid-year.
Expectations of future price rises and an economic recovery
will work to push up bond yields, although the BOJ's huge bond
buying and its strong commitment to ultra-easy policy will
offset some of the upward pressure, she said.
On prices, Shirai warned that it will take considerable time
to achieve the BOJ's 2 percent inflation target in a country
mired in deflation for 15 years.
"As for prices, I personally feel we need to focus somewhat
more on downside risks," she said, adding that an expected sales
tax hike next year may hurt household spending and discourage
companies from passing on the rising costs to consumers.
The BOJ launched an intense burst of monetary stimulus in
April, pledging to double its bond holdings in two years to meet
its inflation goal in roughly two years.