HIGHLIGHTS 2-BOJ's Shirakawa: won't tie policy timing to price outlook

(Adds more quotes on policy)

TOKYO, Oct 5 (Reuters) - Bank of Japan Governor Masaaki Shirakawa said on Friday that the central bank will not link the timing of further monetary easing automatically to its price outlook, signalling that falling short of its 1 percent inflation target would not guarantee immediate policy action.

The BOJ kept monetary policy steady on Friday despite mounting political pressure for action as sagging exports to China and Europe heighten the chance of a recession, preferring to hold fire for now to assess the effect of stimulus it announced just last month.

The following are highlights of Shirakawa's comments from his press conference that followed the monetary policy decision:


"We won't automatically link the timing of policy to the price outlook.

"What's important is whether the economy is performing in a way that allows for consumer price inflation to head toward 1 percent as a trend."

"The government understands how important it is to the BOJ that we achieve sustainable economic growth under stable prices.

"The BOJ and the government are already sharing views and opinions regularly on several levels. One example is my regular meetings with the prime minister. I feel the government understands the BOJ's resolve to end deflation.

"If the BOJ were to continuously buy Japanese government bonds in a reckless manner, yields could fall in the short term but then there would be a risk that they reverse and rise later.


"The slowdown in overseas growth is lasting somewhat longer than expected, which is affecting manufacturers' exports. The impact may gradually spread to other parts of the economy.


"Current debate about the BOJ buying foreign bonds is clearly about manipulating currencies to weaken the yen.

"This is foreign exchange intervention, which falls under the finance ministry's jurisdiction. The finance minister and the chief cabinet secretary have expressed their reservations about this idea. I take that to be the government's view on this issue.

"There is nothing wrong with the BOJ's ability to provide funds. Buying foreign bonds is solely about currency manipulation.

"The BOJ does pay attention to currency moves and the impact they could have on the economy when we considering what monetary policy steps to take.


"The Group of Seven will discuss the global economy and the global financial system. Now that the Group of 20 is the main forum for such discussions, the G7 can exchange opinions more informally.

"We do not have a set agenda. I hope to explain Japan's current economic situation, how difficult things are and explain the monetary policy steps we are taking."

(Reporting by Stanley White and Leika Kihara; Editing by Kim Coghill)

((stanley.white@thomsonreuters.com)(+81 3 6441 1984)(Reuters Messaging: stanley.white.reuters.com@reuters.net))