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UPDATE 2-BOJ policymaker sees lesson in Fed's policy exit challenge
September 19, 2013 / 8:28 AM / 4 years ago

UPDATE 2-BOJ policymaker sees lesson in Fed's policy exit challenge

* Fed decision shows ending unconventional policy
    * Says risks to Japan economy titled toward downside
    * Warns of signs of slowdown in Japan consumption, exports
    * Kuroda reassures markets BOJ's stimulus working

    By Leika Kihara
    KUSHIRO, Japan, Sept 19 (Reuters) - The Bank of Japan should
not increase its stimulus further and needs to learn from the
experience of the U.S. Federal Reserve this week in preparing
for the huge challenge of exiting its unconventional policy, a
central bank board member said.
    The central bank's stimulus could in fact harm the economy
if it was maintained for too long, Takahide Kiuchi said on
Thursday, and so it should not take new steps except in response
to severe shocks to activity or the financial system.
    "Unconventional monetary policy tends to create imbalances
across borders. That's why normalising monetary policy is very
difficult and could cause market disruptions," Kiuchi, a former
private-sector economist, told a news conference.
    "The Fed was only trying to scale back stimulus, not tighten
policy. Still markets get ahead of themselves and long-term
rates shot up more than expected," said Kiuchi, the first BOJ
policymaker to publicly comment on the Fed's decision.
    The Fed defied investor expectations on Wednesday by not
starting to wind back its massive monetary stimulus, saying it
wanted more evidence of solid economic growth. 
    The imbalance created by the Fed's stimulus has made markets
volatile and excessively sensitive to the message the central
bank sends out on the policy outlook, Kiuchi said.
    So when the Fed indicated a tapering was possible earlier
this year, the consequent rise in U.S. Treasury yields and
slowdown in emerging markets as investors withdrew their capital
 instead forced a delay in the start, he added.
    "As the Fed's example showed, there are strong demerits to
huge asset purchases by the central bank. We therefore should
consider easing only if the benefits of doing so outweigh such
demerits," said Kiuchi after speaking to business leaders in
Kushiro in the northernmost prefecture of Hokkaido.
    He added there were no immediate implications for the BOJ
from the Fed's decision, as each central bank decided on the
most appropriate policy for its economy.
    The BOJ launched an intense burst of monetary stimulus in
April, pledging to double the base money via asset purchases to
achieve its 2 percent inflation target in roughly two years.
    Kiuchi, considered a pessimist among BOJ board members,
reiterated his view that two years was not enough given slow
wage growth and Japan's long experience of grinding deflation.
    Previously, the BOJ board has rejected his proposals to make
the inflation target a medium- to long-term goal, and to set a
deadline for the current stimulus.
    Consumer prices rose 0.7 percent in July from a year
earlier, the fastest in five years, though they remain distant
from the central bank's price target.
    In his speech, Kiuchi said risks to Japan's recovery are
growing because advanced economies may not be able to grow fast
enough to pick up the slack from a slowdown in emerging markets.
    "Personally, I see risks to Japan's economy tilted somewhat
toward the downside," Kiuchi said, offering a gloomy view on the
outlook for exports and private consumption. 
    Despite that outlook, he said there was no need for the BOJ
to introduce extra stimulus to offset the impact of an expected
sales tax increase next year.
    "We've abandoned the approach of fine-tuning our policy just
because the economy is temporarily in bad shape. It would take a
significant, big shock for us to consider easing."
    Kiuchi's tone contrasted with that of BOJ Governor Haruhiko
Kuroda, who in a separate appearance said the central bank's
stimulus was having a positive effect on markets and the
    "I expect the gradual economic recovery to continue and for
upward pressure on prices to increase due to gains in corporate
profits and wages," Kuroda said in a speech in Tokyo.
    Data earlier in the day showed that while confidence among
manufacturers slipped in September from a three-year high,
exports posted their strongest growth in three years in August.
    Japan's economy expanded for a third straight quarter in
April-June, outpacing many of its G7 counterparts, as the
pro-growth policies of Prime Minister Shinzo Abe boosted
sentiment and personal consumption.

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