* Noda rules out inflation target, need for immediate action
* Says boosting BOJ"s bond buying may push up yields
* Reverting to quantitative easing won"t lift prices
* Focusing on pushing down longer money market rates
* Capex survey points to downward revision to 4Q GDP (Adds details, Noda comments)
By Tetsushi Kajimoto
OTSU, Japan, March 4 (Reuters) - Bank of Japan board memberTadao Noda rebuffed on Thursday government overtures for loosermonetary policy to support the fragile economy, saying he saw noneed for further easing now.
He also ruled out increasing the amount of government bondpurchases made by the BOJ and reiterated the central bank"s viewthat an inflation target could undermine its attempts to achieveprice stability.
Facing upper house elections expected in July, the fiscallyconstrained government is pressing the central bank for action tooverturn deflation, which some policymakers worry could drag theeconomy back into recession.
"I can"t observe any moves now that would show much change inthe pace of price falls from that I forecast in January," Nodatold reporters. "Thus, I understand that we don"t need any changeat all in monetary policy at the moment from what we set inJanuary and February."
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Instead, Noda urged the government to rein in Japan"s bulgingdebt burden to avoid the risk of pushing up interest rates and soundermine the central bank"s loose monetary policy.
Highlighting the fiscal problems in Greece, the bankingindustry veteran said there was no guarantee bond yields wouldremain low if Japan keeps accumulating debt.
"Markets are increasingly concerned about the risk ofdeteriorating fiscal balances causing rises in long-term ratesand dampening the effect of monetary policy," Noda told businessexecutives in western Japan.
"Sovereign risk is one such risk," he said. "It"s thusimportant to secure fiscal discipline, clearly set a path forrestoring fiscal policy and implement steps at the appropriatetime."
The government, currently seeking parliamentary approval forrecord spending in fiscal 2010/11, is constrained by a publicdebt load that is almost twice the size of the economy, by farthe biggest among developed nations.
Equally, the central bank has said there is little it can doto lift the economy since it has already cut its policy rate tojust 0.1 percent.
"Noda made it clear that the ball is in the government"scourt," said Masamichi Adachi, senior economist at JPMorganSecurities Japan. "As the government"s fiscal strategy drawsmarket attention, he effectively urged the government to makesure it paves the way to restore fiscal health."
MARKETS SEE BOJ LOOSENING POLICY
The government is expected to produce a long-term plan onfiscal discipline in June. It ruled out an increase in sales taxfor four years, raising doubts as to whether it can come up witha credible plan to rein in its debt load.
"There is no doubt that the current situation is quitesevere," Prime Minister Yukio Hatoyama told a parliamentarycommittee on Thursday, adding though that it was not a "crisis".
Ahead of the upper house elections, Hatoyama is looking tooffset a fall in his ratings due to funding scandals and doubtsabout his leadership.
In a sign the BOJ is in no mood for a fight, Noda toldreporters he hoped Japan would escape deflation this year,echoing a wish expressed by Finance Minister Naoto Kan.
But Noda declined to elaborate when asked by reporters howhis comment gelled with the BOJ forecast that deflation wouldlast until early 2012.
Even though Noda played down the chances of fresh BOJ action,shorter-dated government notes gained on market speculation theBOJ will ease policy again at some time. [JP/]
The five-year/20-year yield spread almost matched its widestin a decade as the five-year yield fell to a two-month low.
Indeed, after weeks of government pressure, the central bankcalled an emergency meeting in December to announce a three-monthfunding facility.
Analysts say if the BOJ was to take fresh action, it wouldexpand December"s funding steps. Some analysts think it wouldincrease its long-term bond buying, a move that would please thegovernment if bond yields spike on concern over Japan"s fiscaldeficit. [ID:nTOE61L07O]
The BOJ already buys 21.6 trillion yen ($244.1 billion) ingovernment bonds each year. Noda was cautious about raising theamount in case it is seen by markets as monetising public debt.
He also warned that strengthening the BOJ"s commitment tokeep rates low, such as by setting an inflation target, may leadto imbalances building up in the economy by fuelling a view thatcheap money will be available for a long time. [ID:nTOE62306J]
Debate about an inflation target has flared since FinanceMinister Kan said inflation around 1 percent was desirable.However, the core consumer prices most closely followed byfinancial markets have been falling from a year earlier for 11straight months. [ID:nTOE61O06H]
A return to full-blown quantitative easing is also not anoption since the policy the BOJ took four years ago -- setting aliquidity target and flooding markets with extra cash -- was noteffective in beating deflation, Noda said.
"Noda is clearly shrugging off government pressure. He wantslawmakers to understand that returning to quantitative easing nowwould be harmful," said Seiji Adachi, senior Japan economist atDeutsche Securities.
Noda said demand in the economy was weak so he was focusingon pushing down money market rates with longer durations as theyaffect corporate and household borrowing costs.
Although the economy emerged from recession in the secondquarter of 2009 following the global downturn, data shows therecovery is uneven.
Corporate capital spending in the fourth quarter of 2009 fellfrom a year earlier at a slower pace than in the previousquarter, pointing to a slight downward revision in GDP. Revisedfourth-quarter GDP is due on March 11. [ID:nTOE623035]
The BOJ has kept rates near zero and vowed to keep policyeasy to beat deflation. Its next rate review will be on March16-17. LINKS <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic on capex and GDP http: link.reuters.com/tub33j Does Japan"s govt want to target inflation? [ID:nTOE62306J] Japan"s politically touchy sales tax debate [ID:nTOE61E00T] Japan"s budget and cost-cutting efforts [ID:nTOE61F01A] Key political risks in Japan [ID:nRISKJP]^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> ($1=88.47 Yen) (Additional reporting by Rie Ishiguro, writing by Leika Kihara;Editing by Hugh Lawson and Neil Fullick)
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