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Policy shift imminent at Bank of Japan: official

"I see [the question of] whether consumer price changes stay at or above zero as a key factor in deciding when to lift the policy and I see the timing for the lifting is nearing."

Miyako Suda, member of the Bank of Japan's policy board

One of the Bank of Japan's policy board members said yesterday that the time for the central bank to change its super-stimulative monetary policy is nearing.

The comments by Miyako Suda, seen as one of the more hawkish policymakers, reinforce recent signals from Bank of Japan officials suggesting that a tightening of policy may come late this year or early next year.

The central bank has been pumping cash into the economy to keep interest rates close to zero in a bid to beat deflation and boost the economy. The Bank of Japan has vowed to continue with this policy until deflation gives way to mild inflation for a sustained period.

Economists believe that this condition may be met late this year or next year, but actual interest rate rises still seem some way off.

"I see [the question of] whether consumer price changes stay at or above zero as a key factor in deciding when to lift the policy and I see the timing for the lifting is nearing," Suda said in a prepared speech to business leaders in the western Japanese city of Kochi.

The remarks echoed comments from deputy governor Kazumasa Iwata two weeks ago when he said the Bank of Japan was "very close" to tightening policy.

Suda said although she expects the nationwide core consumer price index to show a year-on-year rise around the end of this year, the timing to end the so-called quantitative monetary easing should be taken "with plenty of leeway."

She was skeptical about the idea of raising interest rates or setting an inflation target at the time of exiting from the quantitative easing policy.

At its policy meeting this month, two of the nine Bank of Japan board members voted to lower the ?30 trillion to ?35 trillion (US$268 billion to US$313 billion) of funds made available by the Bank of Japan to commercial banks.

The IMF urged Japan's central bank to maintain its stimulative monetary policy in its twice-yearly World Economic Outlook report released last week.

"A premature end [to this policy] would endanger the progress that has been made in tackling deflation in recent years," the IMF said.

The nationwide core consumer price index fell 0.2 percent in July from a year earlier. The government will release the August data tomorrow.
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