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UPDATE 3-BOJ's Miyao: QE has risks, but needed to end deflation
April 18, 2013 / 3:20 AM / 5 years ago

UPDATE 3-BOJ's Miyao: QE has risks, but needed to end deflation

* Board member says taken steps needed to meet inflation goal

* Japan monetary policy could draw attention at G20

* Inflation forecasts expected to be revised next week

By Stanley White

GIFU, Japan, April 18 (Reuters) - The Bank of Japan knows there are risks associated with its massive stimulus plan but they were outweighed by the need to act decisively to end 15 years of nagging deflation, policy board member Ryuzo Miyao said on Thursday.

Those risks include the expansion of the central bank’s balance sheet, how it will unwind the quantitative easing, and that the ultra-easy conditions could provoke excessive risk-taking by investors.

“I personally feel that the steps we have taken are necessary to meet our price target at the earliest possible moment,” Miyao said, according to the text of a speech he gave in the central city of Gifu.

“Considering that Japan has been in deflation for such a long time, even if there are some risks, I will support our policies as long as the benefits outweigh the costs.”

The BOJ stunned global financial markets two weeks ago by committing to open-ended asset buying to nearly double the monetary base to 270 trillion yen ($2.7 trillion) by the end of 2014, looking to end two decades of stagnation and lift inflation to 2 percent.

The BOJ’s intense stimulus could be a focal point at a Group of 20 meeting in Washington this week, and investors will look for any signs of unease at how the BOJ’s money printing will impact currencies and other markets.

As part of its stimulus, the BOJ will buy 7.5 trillion yen of long-term government bonds per month, roughly 70 percent of new debt. That has caused yields to rise due to worries that institutional investors would be crowded out of the market.

Miyao said the BOJ would be flexible in its market operations to ensure bond yields fell across the curve and short-term rates remained very low.

He later told reporters the big swings in the bond market this month reflected adjustments to supply and demand and were likely to be temporary.

“It is important for the BOJ to closely communicate with market participants and consider if it needs to take steps to ensure smooth market operations,” Miyao said.

A BOJ official said on Wednesday the central bank would consider increasing the frequency of long-term debt purchases, which would reduce the amount of each purchase and ease bond dealers’ worries about market volatility.


The BOJ is due to update its forecasts at its next policy meeting on April 26, and markets will be looking closely at whether new Governor Haruhiko Kuroda’s two-year timeframe for the 2 percent inflation target becomes an official projection.

The Nikkei newspaper reported on Thursday the central bank could forecast inflation would reach 2 percent by the spring of 2015, consistent with Kuroda’s view although seen by many private-sector economists as too ambitious.

The unsourced Nikkei report said the BOJ was likely to raise its inflation forecast for the 2103 fiscal year, which began on April 1, to between 0.5 percent and 1 percent from 0.4 percent, and raise its fiscal 2014 forecast to around 1.5 percent.

For his part, Miyao said consumer prices in fiscal 2014 would rise more than 1 percent, higher than BOJ board members’ current median forecast of 0.9 percent.

Helping lift inflation to 2 percent would be further yen weakness -- it already hit four-year lows near 100 per dollar this month -- as Treasury yields rise in response to faster U.S. economic growth and the BOJ’s easing, he said.

The U.S. growth and stabilisation in other economies would help Japan’s exports and boost production, he said. In turn, that should see capital expenditure pick up, and the investment in new equipment would lift productivity.

Rising inflation expectations as the economy improved would also help meet the target, he said.

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