Bank of Japan's Kataoka calls for more easing, counters calls for exit - paper

By Leika Kihara

TOKYO (Reuters) - Bank of Japan board member Goushi Kataoka said the central bank must expand stimulus further to achieve its price target early, so that prolonged monetary easing does not hurt the country's banking system, the Sankei newspaper reported on Tuesday.

Kataoka, the sole dissenter to last month's decision to keep monetary policy steady, said it was premature to debate an exit strategy from its massive stimulus programme, according to the interview by Sankei.

"Our near-term challenge is to think about how we can achieve our 2 percent inflation target, and whether current steps are enough," Kataoka was quoted as saying.

While the global economy is in good shape, failing to act now and taking too long to hit 2 percent inflation could leave the BOJ without sufficient tools to fight the next crisis, Kataoka said.

"If the global economy is hit by a big shock, there's a risk things won't proceed as projected. Before that happens, we need to ensure we return to a position where have room to take policy action when needed," he said.

The comments by Kataoka, an economist who joined the board in July, run counter to many others in the nine-member board who have signalled the BOJ's next step should be to dial back - not ramp up - stimulus.

While Kataoka is unlikely to garner enough votes to affect BOJ decisions, his views underscore the dilemma the central bank faces in seeking to achieve its elusive price target with a dwindling policy tool-kit.

Under a policy framework adopted last year, the BOJ now guides short-term interest rates at minus 0.1 percent and the 10-year government bond yield around zero percent.

Kataoka dissented to the decisions in September and October to keep policy steady. In October, he also called for adopting steps to push down 15-year bond yields to below 0.2 percent.

In the interview, Kataoka said pushing down 15-year yields would have a much bigger effect in boosting the economy and inflation expectations than lowering short-term borrowing costs.

Without such stronger easing steps, Japan was unlikely to see inflation hit 2 percent around fiscal 2019 as the central bank now projects, he added.

"We need to avoid a situation where we're forced to continue current monetary policy as inflation fails to reach 2 percent, and gradually hurt Japan's financial system," he said.

(Reporting by Leika Kihara; Editing by Eric Meijer)