From Reuters
Sunday, March 6, 2005

http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=7818579

BASEL, Switzerland -- Bank of Japan Governor Toshihiko Fukui said on
Sunday that rising oil prices and future currency movements posed
risks for Japan's economy, but repeated he would keep the current
ultra-easy monetary policy.

Fukui said Japan's economy would pick up later this year after a
mild recession.

"Oil prices and foreign exchange are risk factors," Fukui told
reporters on the sidelines of a regular meeting of G10 central bank
governors, held at the Bank for International Settlements in Basel.

"(But) the current framework of monetary easing will be kept until
the CPI (consumer price index) comes above zero percent."

Supply concerns pushed world oil prices to within striking distance
of record peaks on Thursday, posing some threats to the oil-reliant
Japanese economy.

Under its ultra-easy monetary policy, introduced in March 2001, the BOJ floods the money market with liquidity to keep interest rates
near zero and encourage business activity.

Japan's economy slipped into recession for the fourth time in a
decade last year, shrinking for a third straight quarter in the last
three months of 2004 as export growth and personal consumption
weakened.

But recent data showed Japanese household spending rose in January
at its fastest pace in six months while the jobless rate stayed at a
six-year low, fuelling expectations the economy will resume growth
this year.

"There is no change in Japan's economic outlook. The economy will
get out of the current pause after the spring," Fukui said.

"We had some good data in January, although that doesn't mean our
economic assessment would brighten up suddenly."

The market is on the lookout for any signals the BOJ may be
considering a change in its ultra-easy monetary policy as the
economy recovers.

BOJ board members have suggested in recent policy-setting meetings
that the bank could allow the amount of current account deposits
held by commercial banks at the central bank to temporarily fall
below their 30-35 trillion yen target.

Some recent money market operations have been undersubscribed, with
demand for excess liquidity apparently diminishing as fears of a financial crisis recede.

But Fukui dismissed the idea of the bank making any changes to
monetary policy soon. Asked whether the BOJ might lower the deposits
target soon, he said "no."

Fukui warned financial markets late last month that the current
ultra-loose monetary policy would not last indefinitely, causing a
rise in long-term yields on Japanese debt.

But he has repeatedly said the bank would keep the current policy
until year-on-year changes in the consumer price index stabilise at
or above zero percent.