Bank of Japan governor Toshihiko Fukui said the central bank will take "proactive" monetary policy actions to reduce the risk of prolonged credit easing triggering a boom-and-bust cycle. Fukui said in a speech at the Japan National Press Club that the BoJ does not have to raise short-term rates drastically because prices are expected to post gradual gains. He repeated that he has "no presumptions about the content and timing" of the BoJ's first rate hike in six years, ending its policy of guiding the overnight call rate effectively at zero pct. Fukui said he had told the other members of the BOJ's policy board this morning that the bank's monetary policy decision-making process is "free of political influences." Fukui also said he would fulfill his duties as the central bank chief, rejecting calls from opposition parties to resign over a personal investment he made in the ill-fated Murakami fund seven years ago, an investment which he maintained after he assumed his position as the BoJ governor in 2003. The fund's founder, Yoshiaki Murakami, was arrested June 5 for alleged insider trading. Last week Fukui told parliamentary hearings that his investment was not intended to make a profit but to "encourage the aspirations" of Murakami, who left the trade ministry to set up the fund. The BoJ governor said he will hold a news conference later today to present details of his 10 mln yen investment and reveal to what cause he will donate personal investment gains. Fukui said he had asked the fund to cancel his investment in February as Murakami appeared to be deviating from his initial goals of seeking greater corporate governance among listed companies. On the macro-economic front, Fukui noted that Japan is exposed to various risks from overseas, such as concerns over slower US growth and rising inflation but added that the domestic economy should stay on track under price stability. A global sell-off in stock markets has not yet caused any major shifts in economies but "could have a negative impact on the overall (Japanese) economy by dampening business and consumer sentiment," Fukui said. "We need to watch (financial markets) closely." "The Japanese economy has been well-balanced between domestic demand and exports and is expected to continue sustained growth," Fukui said. He repeated the bank's latest findings that "the economy and prices are moving in line with our projections made in the (semi-annual) outlook released in April." The board forecast that the growth rate will slow in the next fiscal year to March 2008, while that core consumer prices will edge up slowly. Many companies are chalking up high earnings and their plans to invest in factories and offices remain strong this year, Fukui said, stressing also that there remain both upside and downside risks to the BoJ's growth and inflation scenario. "We expect growth in corporate capital investment to slow down," he said. "The stronger the capex is better but it should not be too strong." "Compared with the past, there are no signs that capex is overdone. Companies are well focused on necessary areas of investment," Fukui said. As the economy slows from the current high clip of 3 pct annual growth rate, the main driver will shift to households from the corporate sector and that should help sustain growth, he said. The jobless rate has dropped and a labor shortage has emerged in Japan, prompting companies to offer more full-time staff positions after years of drastic restructuring to ride out stagnation. "The corporate stance to restrain growth in salaries is still in place, but the rising trend in salaries is expected to continue," Fukui said. "Private consumption is firm." As for an expected correction to the current robust shipments in many sectors, Fukui said the information technology sector "needs a close watch." "There is no sign of a backward inventory buildup in the IT sector," he said. "But there is always a possibility of inventory adjustment." Fukui warned that prices have become less prone to respond to a strong economic recovery, saying "this points to the importance of monetary policy being forward-looking." "As the Japanese economy is moving out of a long stagnation, monetary policy (management) is entering a crucial phase," he said. "If excessive credit easing continues, it could end up triggering wider swings in the economy." Going forward, Fukui reassured that "even after the period of (near) zero interest rates is finished, we should be able to keep interest rates very low, and after that process, we will adjust rates gradually." But he dropped no hints as to whether the BoJ is preparing to raise rates in the July-September quarter, as widely expected in markets. "The content and timing of changing interest rates are up to economic and price conditions. I have no presumptions," he said. He repeated that relationship between monetary policy and the economy is becoming "tenuous and dynamic." "There is no need to make drastic changes (in rates); we can make gradual changes, step by step," Fukui said. "We not only have to look at the current climate, but also need to have an outlook." "We are not focused on any particular statistics, but we are monitoring various data, and at the same time we have an overview and (are) being forward looking," he added. "Monetary policy actions have to be taken in a proactive manner." Given various global risks, the BoJ needs "to keep in close contact with the markets," Fukui said.