UPDATE 1-BOJ Yamaguchi snubs ruling party call for more easing

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(Adds quotes, analyst comments, background)

TOKYO, Feb 5 (BestGrowthStock) – Bank of Japan Deputy Governor
Hirohide Yamaguchi shrugged off a ruling party lawmaker’s call
for further monetary easing on Friday, saying the central bank
has already taken bold steps to combat deflation.

Yamaguchi also dismissed the suggestion that the central bank
should consider scrapping a self-imposed cap on its buying of
long-term government bonds to help put a stop to debilitating
price falls.

He told a parliamentary committee that there could be turmoil
in the financial markets if traders and others got the impression
that the central bank was monetising government debt.

“I expect Japan’s economy to return to a sustainable growth
path with price stability as early as possible as a result of the
measures” the BOJ has taken so far, Yamaguchi said.

The government, whose support rate is slipping ahead of upper
house elections due in the summer, fears deflation and a strong
yen could push Japan back into recession, but it has little room
to lift demand by spending more as the national debt is already
nearing 200 percent of GDP.

“Two things are important in our efforts to beat deflation.
One is to resolve the output gap and the other is to keep
people’s price expectations from falling,” Yamaguchi said.

The BOJ is reluctant to ease monetary policy further partly
because it expects the pace of falls in prices to ease gradually.
Last week it said deflation would be milder than it previously
forecast in the fiscal year from April and the following year.

It is also reluctant to buy more than its current 21.6
trillion yen per year because the balance of its holdings is near
its self-imposed cap.

Finance Minister Naoto Kan reiterated on Friday that he will
keep in close contact with the BOJ in efforts to beat deflation.

“BOJ policy board members have said one after another that
the central bank is doing what it can to fight deflation, so it
is wrong for the government to expect too much from the central
bank,” said Hideo Kumano, chief economist at Dai-ichi Life
Research Institute.

“Still, the government is repeating its requests for the BOJ
to do more apparently because it wants to give the impression to
voters that the government and the BOJ are making joint efforts,
ahead of the election in July.”

The government, whose support rate is slipping ahead of upper
house elections has little room to lift demand by spending more
as the national debt is already nearing 200 percent of GDP.

Standard & Poor’s last month cut the outlook on Japan’s AA
debt rating to negative, saying the policy bind could lead to a
downgrade unless measures were taken to stem fiscal and
deflationary pressure. [ID:nSGE60P08I]

Government debt such as JGBs and U.S. Treasuries have
benefited as widening fiscal concerns over debt-laden euro zone
members like Greece, Portugal and Spain have curbed risk appetite
as investors sold off stocks in these countries. [ID:nLDE6130RE]

The BOJ is virtually alone in expanding monetary easing. The
Federal Reserve and the European Central Bank have said they will
start phasing out their emergency lending and liquidity
facilities in light of improvements in credit markets.

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(Reporting by Tetsushi Kajimoto, Rie Ishiguro; Editing by Hugh
Lawson)

UPDATE 1-BOJ Yamaguchi snubs ruling party call for more easing