BOJ Shirai warns of risks to price outlook, sees no imminent easing

TSU, Japan (Reuters) - Bank of Japan board member Sayuri Shirai ruled out the chance of an imminent expansion of monetary stimulus, but warned of risks to the price outlook that will keep pressure on the central bank as it seeks to hit an ambitious inflation target.

Shirai, a former IMF economist who is more pessimistic about price prospects than some others in the board, said a broad uptrend in inflation was taking hold, and steady improvements in the economy would help lift wages and consumer prices.

 But she warned that wage rises have been modest and companies may be slow in raising prices of their goods if underlying inflation remained subdued for too long.

 "If downside risks materialise and significantly weaken the underlying trend in inflation, I would not hesitate to consider some monetary policy actions," Shirai told business leaders in Tsu, a city in the western prefecture of Mie, on Wednesday.

 "At present, however, I view such a possibility to be low." Shirai later told reporters the BOJ must act if demand slumps, wages slide and inflation expectations weaken enough to "clearly" disrupt the path towards hitting its price target.

 TIMEFRAME SUBJECT TO CHANGE

 The BOJ has held monetary policy stready since expanding its massive stimulus programme in October last year to prevent slumping oil costs, and a subsequent slowdown in inflation, from delaying a sustained end to deflation.

 It pushed back the timing for hitting its price target in April and now says inflation will reach 2 percent in the first half of next fiscal year beginning in April 2016.

 But some in the board feel it will take even longer to hit the target - including Shirai, who said inflation will not approach 2 percent until early 2017 as consumers need more time to accept price rises and boost spending.

 Inflation expectations have been disappointingly weak and if underlying inflation remains subdued, companies may be discouraged from passing higher costs to consumers, she said.

 "If a deviation of actual inflation and the BOJ's price target is sustained, the public and markets may begin to believe that achieving the target would be difficult," she said. 

"This may make it harder for medium- to long-term inflation expectations to rise further and steadily." Many analysts expect the BOJ to ease again later this year on doubts over its rosy forecasts on inflation, which has ground to a halt on low oil costs and soft private consumption.

 Shirai acknowledged that it was taking longer than expected to hit 2 percent inflation. But she stressed that it was natural for central banks to modify their forecasts, including the timing for hitting their price goals, reflecting external factors such as oil price fluctuations.

 In deploying its stimulus in April 2013, the BOJ pledged to accelerate inflation to 2 percent in roughly two years in a country mired in nearly two decades of deflation.

http://finance.yahoo.com/