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BOJ Shirakawa: Japan economy hurt by yen rise, deflation

Reuters – ‎Feb. 6, 2012
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TOKYO, Feb 6 (Reuters) – Bank of Japan Governor Masaaki Shirakawa said on Monday he acknowledges that Japan’s economy is in a severe situation due to deflation and a strong yen, signalling the central bank’s readiness to offer further monetary stimulus if the fragile economic recovery is threatened.

The Federal Reserve’s pledge last month to keep interest rates near zero at least until late 2014 briefly pushed up the yen against the dollar on expectations it will aggressively ease monetary policy, leading to some calls from lawmakers that the BOJ should loosen policy further to counter yen rises.

But Shirakawa shrugged off criticism that BOJ was not as aggressive as the Fed, stressing that both central banks share similar goals of achieving economic growth with stable prices and adding that the Fed itself has explained that its long-term price goal was not an explicit “inflation target”.

“I even feel that the Fed’s policy is getting closer to ours,” he told an upper house budget committee meeting on Monday.

The BOJ has pledged to keep near-zero rates until price stability, which it considers as consumer inflation of roughly around 1 percent, is within sight. That statement has also drawn criticism from some politicians as being too vague, and they argue that the BOJ should set an explicit inflation target.

The BOJ has stood pat on policy after easing in October last year, but is ready to loosen again through an increase in asset purchases if Japan’s recovery prospects are threatened.

“We acknowledge that the problems Japan faces such as the current deflation and yen strength are very severe,” Shirakawa said.

“The BOJ will implement appropriate steps through close examination of the economic situation,” he added.