* Japan recovery prospects uncertain – Shirai
* Adds BOJ keeping close eye on markets, FX
* April easing took into account Europe debt woes
* Policy effect takes time to appear in economy
By Leika Kihara
AKITA, Japan, May 10 (Reuters) – The Bank of Japan’s
monetary easing in April took into account risks from Europe’s
simmering debt woes, board member Sayuri Shirai said, signalling
that the central bank prefers to stand pat for now to examine
the impact of its action on the economy.
The central bank boosted asset purchases by 10 trillion yen
($125 billion) on April 27, its second monetary easing in just
over two months, in a move seen aimed at convincing impatient
politicians and investors of its resolve to end deflation that
has plagued Japan for more than a decade.
But French and Greek elections at the weekend cast fresh
doubts on how much progress Europe can make in resolving its
debt problems, hurting global stocks and pushing up the yen,
Shirai told reporters after meeting with business leaders in
Akita, northern Japan, on Thursday.
Shirai said Europe’s sovereign debt crisis remains among key
risks to Japan’s economy, along with a strong yen and the rising
cost of oil, stressing that the central bank will not rule out
any policy options to support a fragile recovery.
But she added that sufficient firewalls have been installed
to prevent Europe’s debt woes from escalating into a global
crisis, giving the BOJ time to take a thorough look at how its
latest policy action will affect the economy.
“It takes a long time, roughly 1.5 to two years, for the
effect of monetary policy to appear on the economy,” she said.
“We took into account risks from Europe, including (the
likely outcome of elections in) Greece and France, when we eased
policy last month. We’d like to examine the effect of our action
and hope it helps achieve our forecast (of a moderate economic
recovery,” she said.
Renewed jitters over Europe’s debt woes have heightened
investors’ appetite for the safe-haven yen, adding to headaches
for Japanese policymakers worried about the pain a strong yen
inflicts on the economy just emerging from the doldrums. The
dollar stood around 79.70 yen on Thursday, having hit a
near three-month low of 79.428 on Wednesday.
The BOJ will hold its next policy meeting on May 22-23.
RECOVERY STILL SHAKY
Shirai, the first BOJ policymaker to speak publicly since
the Greek election, said the central bank was carefully watching
markets, including yen moves, as recovery prospects for the
export-reliant economy remain uncertain.
“Just because we’re seeing some bright signs in the economy
and prices and that a recovery is foreseen, it doesn’t guarantee
that our (recovery) forecast will be achieved. Even if it is
achieved, the pace (of recovery) is uncertain,” she said.
Shirai also warned that a loss of confidence in Europe’s
fiscal and structural reforms may heighten market tensions again
and hurt global growth.
She left room for further BOJ action by stressing that the
central bank does not rule out any policy options, but added
that it needed to carefully assess the benefits and costs
associated with each measure.
The BOJ loosened monetary policy in February and again in
April even as it stuck to the view that Japan’s economy will
soon resume a moderate recovery.
But some lawmakers continue to demand further easing,
through BOJ buying more longer-dated government bonds, to ease
the pain from a strong yen on the economy.
A former IMF economist, Shirai has voted with the majority
since joining the board in April last year. She is considered as
among the more pessimistic board members on Japan’s economic
outlook.
