BOJ's Sakurai says need to stick with current easing framework

By Stanley White

(Reuters) - Bank of Japan board member Makoto Sakurai said on Wednesday the central bank needs to stick with its current framework for monetary easing as the effects of stimulus become stronger as economic growth picks up.

Sakurai's comments are a sharp contrast to those of another board member at the BOJ's September meeting, which called for stronger measures to help consumer prices reach the central bank's 2 percent target.

"As long-term growth potential improves, people's perception of prices will change, which will raise the natural rate of interest," Sakurai said, referring to the point at which interest rates match potential economic growth.

"This will lower real interest rates and make monetary easing more effective over time. This is why it is vitally important to continue easing with our current framework."

Sakurai made the comments in a speech to business leaders in Hakodate, northern Japan, according to a text posted on the BOJ's website.

The BOJ has had to push back the timing for reaching its price target six times since it deployed its massive stimulus programme in 2013.

It now hopes consumer inflation will hit the 2 percent target by March 2020, but core consumer prices rose only 0.7 percent year-on-year in August.

The BOJ's policy board next meets on Oct. 30-31, when it will update its consumer price forecasts.

A summary of opinions from the previous meeting in September showed one member, who was not identified, calling for stronger stimulus measures.

While such a proposal is unlikely to win over a majority of the BOJ's nine board members, it could spur public debate about whether the BOJ's policies still make sense after repeated revisions to its price target timeframes.

Sakurai reiterated the BOJ's view that consumer prices remain on track to reach 2 percent because companies will eventually have to pass higher labour costs on to consumers.

Sakurai also said the rising labour participation rate and companies' efforts to raise productivity are placing downward pressure on wages and prices in the short term.

However, these two developments are beneficial to prices over the long term, because this will lead to faster economic growth, he said.

At its previous meeting, the BOJ kept monetary policy steady by maintaining its short-term interest rate target at minus 0.1 percent and a pledge to guide 10-year government bond yields around zero percent.

Sakurai also said the BOJ should not change its 2 percent inflation target, as such targets were used by other central banks and contributed to stability in foreign exchange rates.

(Reporting by Stanley White in Tokyo; Editing by Chris Gallagher and Sam Holmes)