*
More time needed to scrutinise impact of Dec move -
Nakagawa
*
Nakagawa warns of risk of wage rises failing to gain steam
*
Inflation could overshoot if companies intensify price
rises
*
Upside, downside risks to inflation evenly balanced -
Nakagawa
(Adds BOJ bond market survey in paragraph 5)
By Leika Kihara
FUKUSHIMA, Japan, March 1 (Reuters) - Bank of Japan
(BOJ) board member Junko Nakagawa said on Wednesday the central
bank must maintain ultra-loose monetary policy for the time
being, as the economy has yet to sustainably achieve its 2%
inflation target.
She also said more time was needed to gauge whether the
BOJ's decision in December to widen the band around its 10-year
bond yield target would be enough to iron out market distortion
caused by its heavy bond-buying.
"Since our decision in December, there were times where
distortion in the yield curve eased, while at other times it
intensified," Nakagawa told a news conference after meeting
business leaders in Fukushima city.
"As for the impact on the corporate bond and fund-issuance
market, we may need some more time to scrutinise," she said,
when asked whether the BOJ could take additional steps to ease
market strains at its next policy meeting on March 9-10.
Investors are heaping pressure on the BOJ to fix its yield
control, with its quarterly survey showing the index measuring
the degree of JGB market functioning at a record low in
February, despite the BOJ's December decision to widen the band
around its 10-year bond yield target to breathe life into the
bond market.
On broader monetary policy, Nakagawa stressed the need to
keep monetary policy ultra-loose as it was uncertain whether
wages would rise enough for Japan to sustainably hit the BOJ's
2% inflation target.
"There's a chance inflation may come under downward pressure
if wage hikes don't spread as much as expected," she said in a
speech to the business leaders.
"It's necessary to support the economy with current monetary
easing for the time being," she said.
Markets participants having been trying to gauge whether the
BOJ will phase out its stimulus by adjusting its bond yield
control policy when incumbent Governor Haruhiko Kuroda's second
five-year term ends in April.
Kazuo Ueda, the government's nominee to succeed Kuroda,
stressed the need to support the economy with ultra-loose policy
for now, saying last week that a shift to tighter policy would
only come when Japan's inflation trend accelerates
significantly.
With inflation well exceeding the BOJ's 2% target, the
central bank's implicit 0.5% cap on the 10-year bond yield - set
at 0% - has come under attack by markets betting on a near-term
interest rate rise.
Some investors predict the BOJ could take more steps at next
week's policy meeting to address market distortion caused by its
heavy-handed intervention in the bond market.
Nakagawa said the recent acceleration in inflation was
driven mostly by a handful of items such as fuel, and would
likely slow as the one-off effect of surging raw material costs
dissipates.
But she also said price increases could intensify if
corporate inflation expectations overshoot, and keep the
inflation rate elevated for longer than expected.
"When looking at prices, there are both upside and downside
factors at play," Nakagawa told the news conference. "At
present, they are evenly balanced."
(Reporting by Leika Kihara; Editing by Edmund Klamann and
Christopher Cushing)
