UPDATE 3-Japan govt repeats deflation warning, pressure on BOJ

(For more stories on the Japanese economy, click [ID:nECONJP])
* Govt says wants to work with BOJ to end deflation
* BOJ minutes: Board expects deflationary pressure to stay
* Some board members said price expectations falling near-term
* Govt official: Toyota’s recalls a concern
(Adds graphic)

By Hideyuki Sano

TOKYO, Feb 23 (BestGrowthStock) – Japan’s government warned on
Tuesday that deflation, unemployment and weaker global growth
could hurt the fragile economic recovery, and the finance
minister called on the central bank again to fight price falls.

The government hasn’t said exactly what it wants the Bank of
Japan to do, however, and while both sides say they share the
same view on deflation, the BOJ has resisted further steps after
caving in once in early December as the yen hit a 14-year high.

Despite the stalemate, analysts say the BOJ could take fresh
action if Japanese share prices tumble or the yen strengthens
significantly, as either could throw Japan’s economic recovery
off course.

“If, for instance, U.S. payroll data were to turn out very
weak and send the yen higher, the BOJ would probably take more
action,” said Takuji Aida, an economist at UBS Securities,
referring to U.S. payroll figures due on March 5.

The BOJ, which has run out of conventional monetary easing
tools with interest rates already at 0.10 percent, set up a new
operation in early December to offer 10 trillion yen worth funds
for three months at considerably cheaper than interbank rates.

Aida said the BOJ could extend that programme to six months
or increase the amount of available funds. Other analysts have
said the central bank, if pushed into action, could buy more
government bonds.

In a monthly report, the government reiterated that it would
work with the central bank to overcome deflation and ensure an
economic recovery, even as it maintained its overall view that
the economy is picking up.

“The government and the BOJ are basically in agreement about
the need to overcome deflation. The government is doing what it
should and it expects the BOJ to do the same,” Finance Minister
Naoto Kan said on Tuesday.

But the minutes of a central bank policy-setting meeting in
late January showed the BOJ is in no rush. While some board
members noted surveys showing a decline in consumers’ near-term
price expectations, the board decided against fresh steps as it
judged that its policy was accommodative enough to support the
economy.

KEEPING UP THE PRESSURE

Kan said last week that he would favour inflation of around 1
percent, roughly matching the BOJ’s view, and he urged the
central bank to do its part to achieve that goal.[ID:nTOE61L00X]

That would be an ambitious target given Japan has been mired
for nearly a decade in deflation, which hurts the economy as
households delay spending due to expectations prices will fall
further.

For a graphic on Japan’s deflation, click on

http://graphics.thomsonreuters.com/0210/JP_DFLT0210.gif

Government representatives at the Jan. 25-26 board meeting
called on the central bank again to help it overcome deflation
through flexible monetary policy, the minutes showed, but the
board took no action and kept rates on hold, as it did this
month.

The board agreed that deflationary pressure would drag on
even as it nudged up its price forecasts, while a few members
said consumers’ longer-term price expectations — which the
central bank thinks are the most important thing to look at —
have not changed much, the minutes showed.

Some BOJ board members said market attention to the nation’s
fiscal deficit was increasing and that it was becoming more
important to gain market trust in fiscal and monetary policies,
the minutes showed.

In its economic report, the government slightly downgraded
its view on exports, saying export growth may be turning
moderate, adding that Toyota Motor’s (7203.T: ) recall woes were a
concern for the economy.

“Strong growth in Asia-bound exports seems to be slowing. And
we also have to consider Toyota’s recalls. So we’ve given a
cautious judgment on exports,” said Keisuke Tsumura, a
parliamentary secretary on economic affairs.

Toyota’s sales have fallen since it recalled more than 8
million vehicles globally for problems including sticky
accelerators and a braking system glitch in its hybrid models.

Japan’s economy grew 1.1 percent in the three months to
December, but it is expected to slow early this year as the boost
from stimulus-fuelled spending fades. [ID:nTOE61805L]

Stock Today
(Editing by Hugh Lawson)

UPDATE 3-Japan govt repeats deflation warning, pressure on BOJ