MNI: BOJ Dec Opinions: Keep Easing Stance, Watch Side-Effects

     TOKYO (MNI) - At least five of the nine Bank of Japan board members

emphasized the need to maintain the current large-scale monetary easing stance

as the bank is far from achieving its 2% inflation target, the summary of

opinions expressed at their Dec. 20-21 policy meeting released Thursday showed.

     At the same time, at least two members argued that the BOJ must carefully

watch side-effects of massive asset purchases and super-low interest rates as

the degree of easing will be enhanced through a decline in real interest rates

once inflation rises more steadily.

     This indicates the BOJ is unlikely to conduct additional easing unless the

economy faces a huge external shock amid the modest but sustained recovery. BOJ

policymakers have been warning against side-effects in recent speeches.

     The BOJ may need to consider raising interest rates if growth and inflation

continue picking up, one member was quoted as saying in the summary of opinions.

     The member said, "When it is expected that economic activity and prices

will continue to improve going forward, the situation may occur where the BOJ

will need to consider whether adjustments in the level of interest rates will be

necessary under the framework of 'QQE (quantitative and qualitative easing) with

yield curve control,' including from the perspective of strengthening the

sustainability of the framework."

     --CURRENT POLICY APPROPRIATE

     As for the conduct of monetary policy, one member said, "It is appropriate

for the BOJ to maintain the current policy stance and pursue powerful monetary

easing with persistence under the current policy framework toward achieving the

price stability target of 2%."

     Another member said, "The BOJ should continue with the current monetary

policy with the aim of persistently encouraging the virtuous cycle to take hold

and achieving the price stability target."

     A different member agreed, "As there is still a long way to go to achieve

the price stability target of 2%, it is appropriate to maintain the current

monetary policy."

     --WATCH SIDE-EFFECTS

     Some board members cautioned against keeping large monetary stimulus for

too long.

     "Amid the situation of the inflation rate increasing toward 2% and the

economy's medium- to long-term growth potential rising going forward, the

effects of monetary easing measures will be enhanced," one member said. "In

conducting monetary policy, it will be necessary to take into account such

changes in the environment as well as the side effects of the measures."

     A different member also warned, "With regard to the purchases of risky

assets including exchange-traded funds (ETFs), given that stock prices and

corporate profits have substantially improved and are expected to continue to

develop firmly going forward, their policy effects and the possible side effects

should be examined from every angle."

     --RETAIL PRICE HIKES KEY

     As for the inflation outlook, one member said that firms' price-setting

stance plays an important role in determining future price developments.

     Another member said, "There remain considerable uncertainties as to whether

an increasing number of firms will shift their stances toward raising prices."

     At its December meeting, the BOJ board decided in an 8-to-1 vote to

maintain its current monetary easing stance under the yield curve control

framework it adopted in September last year.

     Under the yield curve control framework, the BOJ is seeking to stabilize

the 10-year government bond yield, the benchmark for long-term borrowing costs,

at around zero percent and keep the overnight interest rate at -0.1%.

     Board member Goushi Kataoka, who joined the board in July, dissented for

the third straight meeting, although he didn't propose any specific policy

action. Instead, Kataoka's comments were included in footnotes in the bank's

policy statement issued after the board's two-day meeting.

     "Taking account of risk factors such as the consumption tax hike [planned

in October 2019] and a possible economic downturn in the United States, it was

desirable to achieve the price stability target in fiscal 2018, and that it was

appropriate for the BOJ to purchase JGBs so that yields on JGBs with maturities

of 10 years and longer would be broadly lowered," Kataoka said.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

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