*
No need now to take further steps vs market function -
Takata
*
BOJ must stand ready to act against side-effects of easing
*
Benefits of ultra-easy policy exceeding costs - Takata
*
BOJ must 'patiently' maintain easy policy - Takata
(Adds quotes from news conference)
By Leika Kihara and Takahiko Wada
TOKYO/YOKOHAMA, Japan, March 2 (Reuters) - The Bank of
Japan (BOJ) must always stand ready to mitigate the side-effects
of prolonged monetary easing, even as it maintains massive
stimulus, board member Hajime Takata said on Thursday.
Takata said he saw no immediate need to take additional
steps to iron out market distortions caused by the bank's heavy
intervention in the bond market.
But he said the BOJ "obviously" needed to be mindful of the
cost of ultra-loose policy, such as the strain it is causing on
financial institutions' profits and bond market function.
"On balance, the benefits of ultra-loose policy have
exceeded the costs," Takata told a news conference after meeting
business executives in Yokohama.
"But we must continue to humbly scrutinise the side-effects
and be ready to respond," he said. "We always need to think
about the balance (of the benefits and costs) in making policy
decisions," said Takata, a former bond market analyst.
With inflation exceeding the BOJ's 2% target, market bets of
a near-term interest rate hike have forced the bank to ramp up
bond buying to defend its cap set for the 10-year bond yield.
In December, the central bank stunned markets by widening
the band around the 10-year yield target in a move that allowed
the yield to rise to 0.5% from the previous 0.25%.
But the bank's quarterly survey showed on Wednesday an index
measuring the degree of bond market functioning hit a record low
in February, a sign the December decision has done little to
ease market distortions.
"It will take a certain amount of time to gauge the impact
of the tweak we made to YCC on market function," Takata said,
adding that he hoped the bank could mend distortions with
existing market operation tools.
Markets participants have 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.
In a speech delivered to Yokohama business leaders before
the briefing, Takata said the BOJ must "patiently" maintain its
ultra-loose monetary policy, as Japan has yet to see inflation
sustainably hit the bank's 2% target backed by wage hikes.
While Japan's economy is headed for a moderate recovery, it
faced risks such as slowing global demand that could discourage
companies from raising wages, Takata said.
"While we need to be mindful of the impact of our massive
stimulus programme on market function, we're at a stage where we
need to patiently maintain monetary easing," he said.
(Reporting by Leika Kihara; Editing by Christian Schmollinger,
Lincoln Feast and Sam Holmes)
