WRAPUP 2-BOJ newcomer upbeat on economy, unfazed by yield rise

* Upside, downside economic risks in balance -BOJ’s Morimoto

* Warns of yen rise, Europe woes’ impact but sees recovery

* Japan Q3 GDP revised up but policymakers wary of outlook

*

By Leika Kihara and Rie Ishiguro

SAITAMA/TOKYO, Japan, Dec 9 (BestGrowthStock) – Japanese bond
yields
have not risen enough to seriously harm an economy that is set
to resume an export-led recovery, a Bank of Japan policymaker
said, suggesting more monetary easing is not imminent.

Yoshihisa Morimoto, a former utility executive who joined
the central bank’s board in July, also sounded cautious about
the BOJ buying more risk assets, a sign that he may prefer
government bonds to private debt if the central bank were to
top up its asset buying fund.

While warning of the potential market fallout from Europe’s
debt woes, he said risks to Japan’s economy were roughly in
balance, with growth seen recovering next year on a rebound in
exports.

“Exports are unlikely to falter, because of strong demand
in
emerging nations, and will therefore support Japan’s economy
in a relatively long-term perspective,” Morimoto said in a
speech to business leaders in Saitama, near Tokyo on Thursday.

The comments came after data showed on Thursday that
Japan’s
economy grew a revised 1.1 percent in July-September from the
previous quarter, exceeding an initial government estimate and
beating U.S. growth of 0.6 percent in the same period.

But that offered little comfort to policymakers wary of an
expected contraction in the final quarter of this year, as
factory output slumps with a slowdown in overseas growth and
weak car demand after an end to government subsidies.

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Graphic on GDP figures: http://link.reuters.com/fac39q

More stories on Japan’s economy [ID:nECONJP]

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The BOJ eased policy in October by pledging to keep
interest
rates effectively at zero until the end of deflation was in
sight and by crafting a 5 trillion yen ($60 billion) pool of
funds to buy assets ranging from government bonds to corporate
debt, including trust funds investing in stocks and property.

BOJ policymakers have repeatedly said that increasing the
size of the fund would be a clear option if the looming
economic
slowdown proves worse than expected, a view Morimoto echoed.

BOJ SEEN ON HOLD

But with the yen having stabilised after rising to a 15
year
high against the dollar, the BOJ is widely expected to hold off
on expanding the pool at its policy review later this month.

Of the 5 trillion yen fund, the BOJ plans to spend 3.5
trillion yen buying short-term government securities and one-
to
two-year government bonds with the aim of pushing down yields.

But JGB yields have recently surged to multi-month highs in
tandem with gains in U.S. Treasury yields, drawing some
criticism in the market that the BOJ’s bond buying was
insufficient.

Morimoto countered that the BOJ had only just started
buying
assets under the scheme and that more time was needed to
measure
its effect on the economy and the markets.

“At present, I don’t think the rise in long-term interest
rates is having a big negative impact on the economy,” Morimoto
told a news conference.

He also said that, if the BOJ were to expand asset buying,
it should ensure the drawbacks of buying risk assets was
minimised.

“The markets for exchange-traded funds (ETFs) and real
estate investment trusts (REITs) are small … We also need to
take into account the need to restore the health of the BOJ’s
finances,” Morimoto said.

Some market players took the remarks as signalling BOJ
hesitancy towards expanding purchases of risk assets.

“Morimoto was speaking in line with the BOJ’s mainstream
view that there would be limits to boosting purchases of risk
assets such as ETFs and REITs given the relatively small size
of those markets,” said Seiji Shiraishi, chief economist at
HSBC
Securities Japan.

“This means the BOJ would opt to boost its JGB purchases if
it increases the size of its asset buying fund. Rises in
long-term interest rates would also justify such a move.”

Sources have told Reuters that any topping up of the BOJ’s
new asset pool would come mainly in the form of government
bonds. [ID:nL3E6MI0E3]

The five-year JGB yield rose to an eight-month high and the
benchmark 10-year yield climbed to its highest since June on
Wednesday.

Yields eased in early Thursday trade but climbed again
after
Morimoto’s comments, and the market’s instability is adding to
the woes of the fragile Japanese economy.

Analysts polled by Reuters expect Japan’s economy to shrink
0.1 percent this quarter as exports slow and auto output slumps
after the expiry of government incentives for purchases of
low-emission cars. [ID:nSLA9ME6I3]

But many expect the economy to recover next year on the
back
of solid demand in fast-growing Asian nations.

BOJ Governor Masaaki Shirakawa has said risks to Japan’s
economy were roughly in balance, while other board members such
as Miyako Suda have warned that risks were tilted more toward
the downside as exports and output weaken.

Little has been known on the policy stance of Morimoto, a
former senior executive at Asia’s biggest utility Tokyo
Electric
Power Co . Thursday’s event marked his first public
appearance since a debut news conference in July.
($1=83.99 Yen)

(Additional reporting by Kaori Kaneko; Editing by Edmund
Klamann and Sanjeev Miglani)

WRAPUP 2-BOJ newcomer upbeat on economy, unfazed by yield rise