2ND LD: No need for additional monetary easing: BOJ deputy Yamaguchi.

HAKODATE, Japan, July 22 Kyodo

(EDS: UPDATING WITH YAMAGUCHI'S PRESS CONFERENCE)

Bank of Japan Deputy Governor Hirohide Yamaguchi indicated Wednesday that there is no need at the moment for the central bank to further loosen monetary conditions as the Japanese economy is facing little risk of falling into a deflationary spiral.

''Currently, we are not in a situation requiring the implementation of additional monetary easing,'' Yamaguchi told a press conference in Hakodate, Hokkaido, where he met with local business leaders.

Yamaguchi added that the risk of Japan falling into a deflationary spiral is ''small,'' saying that prices are continuing to fall at the moment but the pace of decline is likely to moderate from the latter half of fiscal 2009.

A deflationary spiral is a vicious cycle in which price declines lead to deterioration in economic conditions, resulting in further price declines.

Concern over deflation has been growing as several price gauges have shown record fast rates of decline recently, including a 1.1 percent drop in Japan's key consumer price index in May.

During the meeting with local business leaders earlier in the day, Yamaguchi said the central bank will decide about what to do with its temporary funding measures by carefully monitoring corporate financing and financial markets without a preconceived view and in a way that is predictable for investors.

''The bank will, without any predetermined view, carefully assess developments in corporate financing and financial markets, and will decide, at an appropriate time, whether the support offered by the current measures is still necessary,'' he said.

Yamaguchi added, ''It is important to plan an exit in a way that can be anticipated by market participants and not to bring about unnecessary market disturbances.''

To support corporate financing amid the global financial crisis, the BOJ introduced early this year a series of emergency programs, including the outright purchase of corporate bonds and commercial paper, or short-term corporate debt, from financial institutions.

It also launched a special loan program to offer financial institutions unlimited loans at a low interest rate against approved collateral.

At its policy meeting last week, the BOJ decided to extend all three measures for three months beyond their September expiration to the end of December, saying the environment for corporate financing is improving but still severe.

''To decide when and how these exceptional policies should be withdrawn is...an important policy issue,'' Yamaguchi said.

The BOJ deputy governor added, ''There is still significant uncertainty'' about the prospects for the domestic economy.

If overseas economies fail to recover soon or get worse, it could throw cold water on Japanese companies' capital investment and employment, thereby hurting consumer spending, Yamaguchi said, adding that the BOJ's assessment is that the ''downside risks'' to the economy warrant ''particular attention.''

The BOJ has pegged its key interest rate at 0.1 percent since it lowered the policy interest rate by 20 basis points last December.