BOJ's Sato proposed highlighting risks on price target: minutes

Sun May 25, 2014 9:26pm EDT
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By Stanley White

TOKYO (Reuters) - Bank of Japan board member Takehiro Sato proposed changing the central bank's assessment of prices to say that risks are tilted somewhat to the downside, highlighting skepticism within the board that Japan would be able to decisively beat off deflation in a year's time.

The minutes of the April 30 policy meeting released on Monday showed Sato had also called for changing the wording of the central bank's price target, suggesting a loosening of BOJ's commitment to achieving its 2 percent inflation goal by the end of the next fiscal year.

The proposal was rejected by an 8-to-1 vote, with the BOJ maintaining its stance that risks to prices are finely balanced. However, Sato's views highlight the lingering uncertainty about the price target that could cause the central bank to alter its bullish forecast later in the year.

"Inflation is likely to slow as the impact of yen depreciation from last year falls out of the year-on-year comparison," said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management Co.

"Once this happens it will be difficult for the BOJ to maintain its aggressive outlook. Sato is merely trying to offer a more honest description of prices."

The BOJ aims to achieve 2 percent inflation in about a year from now with an aggressive quantitative easing scheme it put in place last year.

Sato has expressed his doubts about this target before, but taking the additional step of making a proposal to change the central bank's language places him in a group with other skeptical board members Sayuri Shirai and Takahide Kiuichi.

Shirai and Kiuchi have repeatedly proposed changes that would loosen the timeframe for achieving 2 percent inflation or limit the central bank's commitment to continuing with its massive purchases of government debt and risk assets.   Continued...

Bank of Japan board member Takehiro Sato speaks during an interview with Reuters at the central bank in Tokyo September 26, 2012. REUTERS/Yuriko Nakao