HIGHLIGHTS 3-BOJ Nakamura:fund supply not panacea for deflation

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FUKUOKA, Japan, Feb 4 (BestGrowthStock) – Bank of Japan policy board
member Seiji Nakamura said on Thursday that increases in the
central bank’s liquidity provision alone would not help Japan
escape deflation.

“In order to solve demand shortages, it’s important for the
BOJ, the government and private-sector firms to each play their
own roles,” Nakamura told business leaders in Fukuoka, southwest
Japan.

Following are key quotes from his speech and a news
conference that followed.

MONETARY POLICY

(From speech)

“Our basic stance on monetary policy now is to maintain very
easy monetary conditions by providing ample funds to fully meet
market demands and help Japan’s economy escape deflation and
return to a sustainable growth path with price stability.

“It is important to keep this as a basis for our policy
management but we must take the most appropriate monetary policy
in response to changes in the economic and financial environment
without having in mind or excluding specific options in advance.”

(At news conference)

“The BOJ already provides ample funds as needed … It will
need to maintain an accommodative environment. If there are other
effective measures for fighting deflation, the bank will need to
take them.”

ECONOMY

(From speech)

“Compared to a year ago, downside risks have become smaller
but they are still somewhat bigger than upside risks as the
financial crisis has dealt a massive shock to the economy …

“With economic activity at low levels and a recovery in
private demand slow, it is very difficult to balance the needs
between near-term fiscal support and medium- and long-term fiscal
reconstruction.

“If we rely too much on emergency measures that are meant to
be temporary, that would cause a bigger problem in the future. So
we must realise sustainable and balanced growth by reviewing
emergency measures at the appropriate time while considering in
earnest ways to restore fiscal health in medium to long term.”

(At news conference)

“At present, the economies in and outside Japan are supported
by government stimulus. It is not a matter of what to do about
them now.

“But assuming the economy achieves a sustained recovery …
Japan needs to starting laying the groundwork for fiscal
reconstruction.

“The economy’s recovery has shed light on fiscal discipline
… It would be no problem if long-term government bond yields
rise because of economic development. But it would be a grave
issue if yields rise because of risk premium or investor fears of
the risk of holding government bonds. The government needs to
tackle the issue before markets start moving.

“For tackling the fiscal issue, debate is needed on social
welfare, rather than just doing calculations. The government may
need to ask the public to share the burden.”

DEFLATION

(From speech)

“Given expectations for a tepid recovery, it’s difficult to
expect a sudden improvement in the gap between supply and demand.
Therefore I don’t expect we can relieve downward pressure on
prices in the short term.

“In order to shrink the gap between supply and demand it’s
important for the BOJ, the government and private-sector
companies to all play a role.

“The quantitative easing policy that the BOJ adopted from
2001 to 2006 didn’t lead to increased lending and had little
direct impact as a policy to escape deflation.

“That being said, I don’t think increasing liquidity alone
will pull Japan out of deflation. The BOJ will continue to
contribute to price stability with its monetary policy. It is
also important for innovation at home and abroad to contribute to
the creation of demand and an increase in productivity, which
could translate into expectations that incomes will rise over the
mid to long term.”

RELATIONS WITH GOVERNMENT

(At news conference)

“Monetary policy is part of economic policy. The BOJ will
definitely keep communicating with the government to fight
against deflation.”Money

Money

(Reporting by Rie Ishiguro; Editing by Chris Gallagher)

HIGHLIGHTS 3-BOJ Nakamura:fund supply not panacea for deflation