Reuters: US Dollar Report: UPDATE 1-BOJ policymaker warns Japan may miss price forecast

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UPDATE 1-BOJ policymaker warns Japan may miss price forecast Nov 29th 2012, 03:02 Wed Nov 28, 2012 10:02pm EST * BOJ Shirai warns of greater downside risks to economy * Adds expected sales tax hike may hurt consumption * Markets expect more BOJ easing as early as this month By Leika Kihara KUMAMOTO, Japan, Nov 29 (Reuters) - Bank of Japan board member Sayuri Shirai warned of looming risks to the economic outlook that could keep price growth lower than the central bank's forecasts, keeping alive market expectations of further monetary loosening as early as this month. Shirai, a former IMF economist, repeated the BOJ's view that consumer inflation will steadily approach the central bank's target of 1 percent in the year ending in March 2015. But she said the risk balance for price growth was "tilted to the downside," warning that the widening pain from Europe's debt woes, slowing Chinese growth and the looming U.S. fiscal cliff may delay Japan's progress in overcoming deflation. "While both upside and downside risks to the economy exist, I personally see the downside risks as greater," Shirai told business leaders in Kumamoto, southern Japan, on Thursday. "I will continue to constantly consider how the BOJ can best respond to the current challenging environment for Japan's economy," she said. Japan's economy shrank 0.9 percent in the quarter to September and analysts expect another contraction in the final three months of this year, a sign that weak exports and output were nudging the economy into recession. The BOJ eased policy for two straight months in October to ease the pain from weakening global demand, and many market players expect it to expand stimulus again as early as its next policy-setting meeting on Dec. 19-20 in the face of heightening political pressure for bolder action to beat deflation. Aside from overseas risks, Japan's economic outlook is also clouded by an expected sales tax hike in 2014 that could dampen consumer spending, Shirai said. In its latest forecasts issued on Oct. 30, the central bank expects core consumer prices to fall 0.1 percent in the year ending in March 2013, but rise 0.4 percent in the next year and 0.8 percent in the year to March 2015. The BOJ set a 1 percent inflation target in February and has eased monetary policy four times so far this year to beat deflation and revive an export-reliant economy hurt by a strong yen and weakening global demand. But core consumer prices fell 0.1 percent in the year to September, marking the fifth straight month of declines. Data due out on Friday is expected to show they posted flat growth in October, according to analysts polled by Reuters. Shirai is regarded as among those in the nine-member board who are more pessimistic about the economy and more eager to loosen policy pre-emptively to forestall risks to the outlook. Link this Share this Digg this Email Reprints

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