* BOJ policy will take into account yen rise impact –
Shirakawa
* Warns of risk China’s slowdown may be prolonged
* Adds monetary condition already loose, won’t aim for
surprise
(Adds details, background)
By Leika Kihara
OSAKA, Japan, Aug 24 (Reuters) – Bank of Japan Governor
Masaaki Shirakawa on Friday warned of a possible delay in
China’s economic pickup and a strong yen that could add pain to
Japan’s economic recovery, signalling the bank’s readiness to
offer monetary stimulus if risks heighten further.
Japan’s economy is expected to outpace major industrialised
nations with the government projecting an expansion of 2.2
percent in the current year to March 2013, as a boost from
government stimulus and spending on rebuilding after last year’s
earthquake underpin domestic demand.
Shirakawa maintained the BOJ’s view that the economy was
resuming a moderate recovery but warned that the timing of a
pickup in external demand was uncertain as China’s slowdown
persists.
“We must be mindful of whether China’s economic slowdown may
be further prolonged,” he said.
Japanese exports slumped the most in six months in July as
shipments to Europe and China tumbled, adding to concerns over
global demand after a string of dire trade figures from Asia’s
export engines.
Shirakawa said the central bank will take into account the
pain inflicted by the yen’s strength when setting policy, noting
the business community unease over the yen’s loss of
competitiveness, particularly against the South Korean won.
“The BOJ views yen rises as having a big negative impact on
Japan’s economy,” Shirakawa told business leaders in Osaka,
western Japan, home to electronic giants like Panasonic and
Sharp which face tough competition from its South Korean rivals.
“The government and the BOJ haven’t been sitting idly
against yen rises,” he said. “The government has intervened in
the currency market when necessary, while the BOJ is pursuing
powerful monetary easing.”
POLICY SURPRISES COUNTER-PRODUCTIVE
Shirakawa stressed that monetary conditions are already very
loose in Japan, with the benchmark interest rates kept between
zero and 0.1 percent.
Shirakawa said shocking markets by loosening monetary policy
unexpectedly was counter-productive, and the “surprise” effect
was generally short-lived.
And he called for government and corporate efforts to make
use of cheap money, through deregulation and investment in new
areas, to beat deflation that has plagued Japan for more than a
decade.
The government, however, is facing a political battle to
push legislation through a split parliament that is needed to
sell bonds for this fiscal year’s budget, with Prime Minister
Yoshihiko Noda under pressure from the opposition to call an
early election.
Without a breakthrough, the government could run out of
money for welfare benefits and would probably have to start next
month cutting grants to local governments and
government-affiliated agencies.
The BOJ kept monetary policy steady this month, standing pat
for the fourth straight month after delivering extra stimulus
m e asures in February and April.
The central bank set a 1 percent inflation target and
boosted bond buying in February to convince markets it was
serious about pulling the economy out of deflation, which
hampers consumer spending and business investment.
It followed up with another increase in its asset buying
pool in April, but has held fire since then, in the belief that
rebuilding after the eathquake would keep the economy on track
recovery.
(Editing by Chang-Ran Kim and Simon Cameron-Moore)
