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PM Abe adviser: BOJ doesn't need to ease policy in Jan

TOKYO (Reuters) - Japan’s strong jobs market will allow the central bank to keep monetary policy unchanged this month, despite recent market turmoil and falling oil prices, a key economic adviser to Prime Minister Shinzo Abe said on Friday.

Koichi Hamada, professor emeritus of economics at Yale University and an economic adviser to Japan's Prime Minister Shinzo Abe, speaks during an interview with Reuters in Tokyo March 15, 2013. REUTERS/Toru Hanai

Koichi Hamada, Special Adviser to the Cabinet, expects energy price declines to give Japan’s economy a boost and for the central bank to have some flexibility around its 2 percent inflation target timeframe, so long as price measures that exclude fresh food and energy costs rise.

“Japan’s jobs market is doing exceptionally well. I don’t think the BOJ needs to worry about day-to-day market fluctuations,” Hamada told Reuters in an interview.

“There is no reason for markets in Japan to fall as much as those in China because, while Chinese economic fundamentals and policy reactions are very weak, the Japanese economy is doing all right,” he said.

Asked if the BOJ needs to boost its stimulus policy in January, he said: “No, but it’s up to the BOJ to decide details of monetary policy.”

The BOJ will hold its policy meeting on January 28-29, when the central bank will review its economic and price forecasts.

“Oil price declines are good news for Japan’s economy but they make it difficult to beat deflationary expectations,” he said.

“Still, I don’t think the BOJ was responsible for the fact that oil price falls on this scale weren’t factored in when the inflation target was set.”

BOJ Governor Haruhiko Kuroda said on Friday he had no plans to expand monetary stimulus now, blaming sharp declines in oil costs for keeping consumer inflation distant from the bank’s ambitious 2 percent target.

SALES TAX HIKE

Japan plans to raise a sales tax to 10 percent in April 2017 three years after the nation hiked the levy to 8 percent in April 2014, a policy that ultimately hurt consumer spending.

“The negative impact from the tax hike (in April 2014) was bigger than I had expected,” Hamada said.

“The slowdown in consumer spending wasn’t caused solely by the tax hike but also by people’s expectations for the next one in 2017.”

Hamada refrained from commenting on whether Japan should increase the levy again but said “I think Prime Minister Abe should be given the freedom to decide whether to carry out the sales tax plan or postpone it.”

Additional reporting by Chang-Ran Kim; Editing by Sam Holmes

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