BOJ policymaker pledges to keep ultra-easy policy for time being

[KOCHI] Japan's central bank will not dial back its ultra-loose policy in the near-term, a bank board member said, as global risks cloud prospects for hitting its elusive inflation target and despite the impact of prolonged easing on the financial sector.

Bank of Japan (BOJ) board member Yukitoshi Funo, a former executive of Toyota Motor, said the central bank must be mindful of the risks that prolonged monetary easing could hurt financial institutions' profits and destabilise the country's banking system.

But he said the central bank's priority was to keep stimulating the economy, to give the government and companies time to boost Japan's growth potential through structural reforms and increased capital expenditure.

"The BOJ will continue its monetary easing to support measures by various entities" to heighten Japan's growth potential, Mr Funo said in a speech to business leaders in Kochi, western Japan, on Wednesday.

Years of heavy money printing have failed to fire up inflation to the BOJ's 2 per cent target, forcing the central bank to maintain its massive stimulus despite the rising cost such as the hit to bank profits from near-zero rates.

The BOJ took steps in July to make its policy framework more sustainable, such as allowing bond yields to move more flexibly around its zero percent target.

The central bank also adopted a pledge - dubbed "forward guidance" - to keep interest rates very low for an extended period, partly to dispel market speculation that it may hike rates to give financial institutions some breathing space.

"What we're saying is that, given recent price developments, we will not whittle down our powerful monetary easing for the time being," Mr Funo said.

Japan's core consumer prices rose 0.7 per cent in September from a year earlier, remaining distant from the BOJ's target, despite a steady economic expansion and a tightening job market.

Data released on Wednesday showed inflation-adjusted real wages fell in September for a second straight month, as higher petrol costs sap consumers' purchasing power.

Heightening external headwinds also mar the outlook for Japan's economy with analysts now projecting a contraction in the third quarter.

Mr Funo said that while Japan's economy is likely to continue expanding moderately, there were various uncertainties for the overseas economic outlook.

"Particularly uncertain is the outlook of each country's trade policy, which warrants attention," said Mr Funo.

REUTERS