BOJ must avoid premature exit from easy policy - deputy governor nominee

By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) - The Bank of Japan must avoid a premature exit from its ultra-easy policy to ensure the economy is completely out of deflation, Masazumi Wakatabe, one of the two nominees for BOJ deputy governor, said on Monday.

"What's most important is to make a full exit from deflation. The BOJ's 2 percent inflation target is effective and meaningful for this purpose," Wakatabe said in a confirmation hearing in the lower house of parliament.

"Prematurely shifting the BOJ's easy policy could pull Japan back to deflation," he said, adding that the BOJ must be ready to ramp up stimulus if doing so is needed to hit its price goal.

Wakatabe, an academic known as a vocal advocate of aggressive easing, said the merits of the BOJ's stimulus programme "far exceeded" the costs, brushing aside criticism from some analysts that prolonged monetary easing was straining Japan's banking system.

The BOJ now guides short-term interest rates at minus 0.1 percent and the 10-year government bond yield around zero percent as part of efforts to achieve its elusive 2 percent inflation target.

Wakatabe said the BOJ must hold off whittling down stimulus until inflation is stably above 2 percent for a set period of time.

"The BOJ ought not shift toward an exit from easy policy before 2 percent inflation is achieved. It's also not feasible to head for an exit just because inflation temporarily hits 2 percent," he said.

Wakatabe did not specify on what tools remained available if the BOJ were to expand stimulus, though he said there was room to "modify or ramp up" the bank's tool-kit if needed.

Wakatabe and BOJ Executive Director Masayoshi Amamiya were nominated by the government to become deputy BOJ governors, when the posts become vacant later this month.

(Reporting by Leika Kihara and Tetsushi Kajimoto; Editing by Chris Gallagher and Sam Holmes)