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BOJ Shirai: Diverging monetary policies may prompt Japan fund outflows

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Japanese investors may increasingly shift funds overseas as US and British central banks prepare the ground to raise interest rates even as the Bank of Japan maintains its ultra-loose monetary policy.

[TOKY] Japanese investors may increasingly shift funds overseas as US and British central banks prepare the ground to raise interest rates even as the Bank of Japan maintains its ultra-loose monetary policy, BOJ board member Sayuri Shirai said.

Shirai, a former International Monetary Fund economist, also said the BOJ's massive stimulus is prompting Japanese households and companies to shift funds to riskier assets by nudging down returns from low-risk investment.

But there are no signs that the BOJ's "quantitative and qualitative easing" (QQE) is creating financial imbalances or triggering excessive risk-taking in Japan, she said in a monthly economic magazine, the text of which was released on Thursday. "We're only half way in meeting our 2 per cent inflation target, so we will continue to support Japan's economy with easy monetary policy," Shirai said.

She added that inflation expectations in Japan are hovering around 1 per cent, still distant from the BOJ's 2 per cent inflation target.

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At a policy-setting meeting earlier this month, Shirai dissented to the BOJ's assessment that inflation expectations are "heightening as a whole" on the view underlying indicators show they are roughtly flat.

The BOJ has stood pat on monetary policy since deploying an intense burst of stimulus in April last year, when it pledged to double base money via aggressive asset purchases to achieve its 2 per cent inflation target in roughly two years.

The US Federal Reserve is expected to raise interest rates some time next year, while the Bank of England is also moving in that direction though the threat of a recession in the euro zone has many analysts doubting that the Fed and BOE policy makers will be hurried into tightening policy.

REUTERS

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