July 25, 2011 / 4:15 AM / in 6 years

UPDATE 2-BOJ Shirakawa warns of yen rise pain on Japan economy

 * Shirakawa warns of global economic uncertainties
 * Adds yen rise may hurt exports, corporate revenue
 * Europe, U.S. debt woes risk pushing up bond yields
 * Finmin Noda says current forex moves one-sided

 (Adds Shirakawa comments, details)	
 By Leika Kihara and Rie Ishiguro	
 TOKYO, July 25 (Reuters) - Bank of Japan Governor Masaaki
Shirakawa warned on Monday that recent yen rises could hurt the
country's economic outlook by undermining exports and corporate
sentiment, voicing alarm over mounting risks to the fragile
 Shirakawa also said Europe's sovereign risks and mounting
tensions in U.S. debt talks have left open the possibility of a
sharp rise in global bond yields, which would severely hurt
advanced nations with worsening finances.	
 Stocks fell on Monday while safe haven currencies such as
the yen rose, as efforts failed to produce a political deal to
avert a U.S. default, although there were no signs of panic
 Japanese authorities have stepped up their warnings about
yen rises, which they fear could hurt the export-reliant
economy, but that did not keep the dollar from hitting a fresh
four-month low around 78.10 yen early on Monday.	
 Shirakawa warned that yen strength may harm Japan's economy
by undermining exports, corporate revenue and business sentiment
if they are driven by uncertainty over the global economic
 "The United States, Europe, emerging and commodity-producing
economies are all saddled with risks," Shirakawa said in a
speech at a seminar.	
 "Given these risks in the overseas economy, we need to
carefully watch moves in the currency market."	
 Shirakawa's latest warning on the potential harm of yen
rises was more detailed than remarks last week, when he said
only that yen rises put short-term downward pressure on the
economy. Monday's comments suggested growing alarm at the BOJ
over the yen's strength.	
 "We will continue to carefully examine the outlook for the
economy and prices, and take appropriate action when necessary,"
he said, signalling the BOJ's readiness to ease monetary policy
further if its forecast of a moderate economic recovery later
this year comes under threat.	
 Finance Minister Yoshihiko Noda also said on Monday that
recent currency moves were one-sided and that he was closely
watching market developments.	
 U.S. lawmakers failed to achieve a budget breakthrough and
instead worked on rival plans on Sunday in an impasse that
heightened the prospects for a catastrophic U.S. debt default.	
 Growing market worries about the possibility of a U.S. debt
default, coupled with Europe's debt problems, have pushed up the
yen as investors seek the relative safety of Japan's currency.	
 That clouds the outlook for Japan's economy, which is just
shaking off supply constraints from the devastating earthquake
in March and needs support from exports to exit recession.	
 Shirakawa stuck to the BOJ's forecast that the Japanese
economy will resume a moderate recovery in autumn, but issued a
stronger warning over potential risks to the outlook.	
 "If global financial markets destabilise as a result of
Europe's sovereign risk, that would hurt the world economy,"
Shirakawa said.	
 "While we expect the global economy to achieve strong growth
as a whole, there are various uncertainties over the outlook. We
need to be mindful of these risks," he said.	
 Despite repeated verbal warnings by policymakers against
pushing up the yen too much, traders say Tokyo is unlikely to
intervene in the market because the moves are being driven by
factors beyond Japan's control.	
 That puts pressure on the BOJ to ease policy further in the
hope of pushing down bond yields and stemming yen rises.	
 Central bank officials concede that a yen spike accompanied
by sharp falls in share prices would be the most likely next
trigger for further easing.	
 Shirakawa said the BOJ would consider what it can do to
support the economy in the short term.	
 But he repeated his opposition toward calls for the bank to
underwrite government debt or buy bonds to be issued to fund
reconstruction costs for the March quake, stressing the need
instead to pursue fiscal reform.	
 "Japan's fiscal balance is worsening but long-term interest
rates have moved stably at the lowest level in the world,"
Shirakawa said.	
 "But unless there is a specific plan for restoring Japan's
fiscal health, the market's perception may suddenly change."	
 The BOJ has kept policy on hold since easing credit just
days after the March earthquake by topping up a pool of funds to
buy assets ranging from government bonds to private debt.	
 But BOJ Deputy Governor Hirohide Yamaguchi said last week
that the central bank would act flexibly and decisively with an
eye on how yen rises could affect the economy, signalling
readiness to ease further if the recovery comes under threat.	
 The central bank will hold its next rate review on Aug. 4-5.	
 (Editing by Edmund Klamann)	

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