Reuters: US Dollar Report: UPDATE 1-BOJ Shirakawa reluctant to boost bond buying

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UPDATE 1-BOJ Shirakawa reluctant to boost bond buying Jun 4th 2012, 05:33 Mon Jun 4, 2012 1:33am EDT * Carefully watching yen impact on economy - Shirakawa * Sticks to forecast of moderate recovery * Shirakawa cautious of higher inflation target By Leika Kihara and Rie Ishiguro TOKYO, June 4 (Reuters) - Bank of Japan Governor Masaaki Shirakawa reiterated his upbeat view on the economy on Monday and warned against central bank buying of government bonds too aggressively, a sign the BOJ bank was not inclined to offer another big-bang stimulus any time soon. Shirakawa warned that Europe's debt crisis, uncertainty over the U.S. recovery, and recent yen rises clouded the outlook for Japan's economy, stressing that the BOJ will carefully watch how the strong yen affects business sentiment. But he stuck to the view that Japan's economy will resume a moderate recovery due to an expected pickup in global growth, robust private consumption and domestic fiscal spending to rebuild after last year's earthquake. "Business sentiment is improving as companies' profit outlook recovers, and capital spending is on a moderate uptrend. Household sentiment is also improving with consumption gradually increasing. The economy is showing clearer signs of a pickup," Shirakawa said in a forum. The BOJ set a 1 percent inflation target and eased monetary policy in February via an increase in asset purchases, and followed up with another stimulus in April in a show of its determination to beat deflation. The central bank is ready to boost money supply again if Europe's deepening debt crisis triggers a market shock and a yen spike to new records. Otherwise, it prefers to stand pat for now although the yen's renewed rises have kept the BOJ under pressure to ease the stress on the export-reliant economy. Shirakawa said that the BOJ has already pledged to buy nearly 20 trillion yen ($256 billion) in additional assets over the next year under its asset-buying programme and that by meeting this pledge, it was already easing policy aggressively. He also expressed caution about boosting the BOJ's purchases of government bonds further in an attempt to dispel lingering market expectations of further monetary easing. "If the BOJ pressed on too aggressively with purchases of government bonds, it could briefly push down long-term yields but subsequently trigger a jump in yields as bond markets would be too dependent on the central bank's purchases," he said. With Japan mired in deflation for much longer than other countries, it also makes little sense for the BOJ to target 2 percent inflation, Shirakawa said, shrugging off criticism from some market players that its 1 percent target was too low. "Simply announcing out of the blue that the BOJ will aim for 2 percent inflation ... might raise unnecessary uncertainties for businesses and households" not accustomed to such levels of inflation," he said. Link this Share this Digg this Email Reprints

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