BOJ Shirai says expects JGB yields to eventually stabilize

By Leika Kihara

Asahikawa, JAPAN (Reuters) - The Bank of Japan expects bond yields to stabilize over time with its flexible market operations and massive asset purchases, a central bank policymaker said, signalling that it has no immediate plans to take fresh steps to calm volatile markets.

Sayuri Shirai, a former IMF economist who is among the BOJ's nine board members, stuck to the central bank's assessment that the economy will resume a moderate recovery around mid-year but warned that meeting its 2 percent inflation goal will take time.

Expectations of future price rises and an economic recovery will work to push up interest rates, although the BOJ's huge bond buying and its strong commitment to ultra-easy policy will offset some of the upward pressure, Shirai said on Thursday.

"The BOJ will continue to closely monitor market developments. With flexible market operations, taking into account discussions with market participants, the BOJ expects both short and long-term interest rates to move stably as a whole," she told business leaders in Asahikawa, northern Japan.

The BOJ kept monetary policy steady on Tuesday and held off on new measures to quell bond market turbulence, judging that its massive monetary stimulus in April was sufficient to revive the stagnant economy and pull it out of chronic deflation.
The decision contributed to a sharp sell-off in global equities, including Japanese shares, as the prospect of less stimulus from central banks - particularly from the U.S. Federal Reserve - depressed sentiment.
The dollar fell to a 10-week low against the yen on Thursday amid uncertainty about whether the Fed will pare back its stimulus program, with a plunge in Japanese shares accelerating the fall.
Recent losses in Japan's Nikkei share average have sparked dollar selling as foreign investors unwound hedges they took out to protect themselves from a weakening yen.
The Nikkei dived 6 percent on Thursday, a potentially unwelcome development for Prime Minister Shinzo Abe's bold monetary and fiscal stimulus that relies heavily on boosting sentiment to revive the world's third-biggest economy.
The benchmark 10-year government bond yield slipped below 0.8 percent during the session for the first time in nearly a month, as share prices withered on a resurgent yen, which hurts the export-reliant economy.

Shirai made no direct mention about Thursday's market moves in her speech but said that despite recent corrections, the trend of a weakening yen and rising share prices have had a positive effect on Japan's economy.

"We expect Japan's economy to resume a moderate recovery around the middle of 2013," she said, adding that risks to the economic outlook was balanced as a whole.
On consumer prices, she said the risk balance was slightly tilted toward the downside, warning that it will take considerable time for Japan to achieve 2 percent inflation.

The BOJ launched an intense burst of monetary stimulus in April, pledging to double its bond holdings in two years to meet its inflation goal in roughly two years.

(Reporting by Leika Kihara; Editing by Shinichi Saoshiro and Shri Navaratnam)