December 4, 2013 / 3:25 AM / 4 years ago

UPDATE 3-BOJ's Sato says no need to forestall tax hike pain with more easing

* Little room to shock markets with scale as in April
    * BOJ has departed from incremental approach-Sato
    * Repeats inflation target should be flexible one
    * Sato is among dissenters to BOJ's rosy projections


    By Leika Kihara
    HAKODATE, Japan, Dec 4 (Reuters) - Bank of Japan board
member Takehiro Sato said he saw no need to expand monetary
stimulus pre-emptively to counter the pain to the economy from
next year's sales tax hike, seeking to dispel speculation of a
near-term expansion of its ultra-easy policy.
    Even if the BOJ had tools remaining to expand stimulus,
doing so could be counter-productive after having deployed all
possible steps in a single blow in April, said Sato, who is
among those in the board who are more pessimistic about
prospects for achieving the central bank's inflation target.
    "The BOJ has broken away from the incremental approach (on
monetary policy)," Sato told business leaders in Hakodate,
northern Japan, on Wednesday.
    "This is the time to carefully monitor the policy effects,
taking into account future economic and price conditions."
    Prime Minister Shinzo Abe is readying a $182 billion package
this week in his latest bid to pull the economy out of deflation
and bolster it ahead of the tax hike next April. 
    The BOJ stunned financial markets early this year by
pledging to double base money via aggressive asset purchases to
achieve 2 percent inflation in roughly two years.
    Expectations that the BOJ will maintain its ultra-loose
policy longer than other major central banks, and may even
expand it again next year, have bolstered Tokyo share prices and
pushed the yen down to a six-month low against the dollar.
    Sato said the BOJ ought to be ready to act again to remove
any barriers that may emerge in meeting its price target. But he
added that it would be hard to offer stimulus that can shock
markets as much as, or even exceed, the April policy action.
    "I think tools for additional action are limited. But that
does not mean the BOJ is ruling out any options," he told a news
conference after the meeting with business leaders.
    While the BOJ sees no need for immediate action, its
bureaucrats are pondering options in case pressure for further
stimulus heightens next year, when the economy takes a hit from
the sales tax hike and prices lose support from the weak yen
that is now pushing up import costs. 
    Abe said on Wednesday that he believed BOJ Governor Haruhiko
Kuroda would make the right decision, when asked about the
possibility of additional monetary stimulus by an opposition
lawmaker in parliament.
    "I put great trust in (Kuroda), who has said he would not
hesitate to take steps if risks emerged," Abe said.
    Sato said the amount of government bonds the BOJ buys under
the April framework is near the limit of what it can take up
realistically, suggesting that he saw little room to top up
purchases further even if it were to ease again.
    
    THRESHOLD FOR ACTION HIGH
    Sato and fellow board member Takahide Kiuchi have publicly
doubted that 2 percent inflation can be met in two years. Many
private-sector analysts also see the BOJ's timeframe as too
ambitious for a country mired in deflation for 15 years.
    The former private-sector economist was among the three
board members who dissented to the BOJ's rosy projections in
October, calling for the price target to be watered down.
    Sato repeated his view that the BOJ's target should be
considered a flexible one with certain allowance for deviations,
given it was difficult to keep inflation rigidly at 2 percent
due to uncertainty over how the effect of monetary policy
appears on the economy.
    He also voiced scepticism on whether consumer inflation, now
nearing 1 percent, can sharply exceed that level because
companies may increase wages only temporarily and there was no
guarantee the BOJ's massive stimulus will heighten public
expectations that prices will keep rising.
    "There's high uncertainty on whether short-term price rises
will affect medium- to long-term inflation expectations," he
said.
    Sato stuck to the BOJ's baseline view that Japan's economy
is recovering moderately, adding that he did not expect next
year's sales tax hike to severely hurt growth.
    He stressed the BOJ should not expand stimulus unless Japan
is hit by a severe shock that derails progress in accelerating
inflation to 2 percent.
    "My understanding is that downside risks (that may trigger
action) ... do not concern such trivial matters as a small
divergence from our economic and price forecasts," Sato said.

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