MNI: BOJ Keeps Policy Target, Show No 2% CPI Timeframe -2-

     TOKYO (MNI) - The Bank of Japan board on Friday slightly revised up its

economic growth projections for fiscal 2018 and 2019, backed by solid global

demand and despite an expected slowdown in domestic demand.

     While risks to economic growth are largely balanced in fiscal 2018,

downside risks are higher than upside risks in fiscal 2019 onward, it said.

     The board maintained its view that downside risks to inflation are higher

than upside risks throughout its new three-year projection period to March 31,

2021. 

     It slightly revising down its forecast for the core consumer price index

(excluding fresh food) for fiscal 2018 and leaving its estimate for the next

fiscal year unchanged at 1.8%, below its 2% inflation target.

     --BELOW 2% FORECAST

     * The board's median forecasts for core CPI (excluding fresh food): +1.3%

in fiscal 2018 (+1.4% in January); +1.8% in fiscal 2019 excluding the direct

impact of the sales tax hike planned in October 2019 (+1.8% in January); +1.8%

in fiscal 2020 excluding the effects of the tax change (the first forecast).

     * The board's median forecasts for real GDP: +1.6% in fiscal 2018 (+1.4% in

January); +0.8% in fiscal 2019 (+0.7% in January); +0.8% in fiscal 2020 (the

first forecast).

     * The BOJ left its estimate for Japan's growth potential unchanged in a

range of 0.5 to 1.0%.

     --NO TARGET CHANGE

     The BOJ is expected to keep the shape of the nearly flat bond yield curve

for some time to come because the increase in consumer prices remains slow amid

the sustained, moderate economic recovery.

     Under the yield curve control framework, the BOJ will seek 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%.

     The BOJ's asset purchases, which are not the main policy target any longer,

will be maintained at the current pace. The outstanding amount of its JGB

holdings will increase about Y80 trillion annually, but the pace has slowed in

light of the recent drop in yields.

     The annual pace of purchases of other assets will also be maintained at Y6

trillion for exchange-traded funds (ETFs), Y90 billion for Japan real estate

investment trusts (J-REIT), Y2.2 trillion for commercial paper and Y3.2 trillion

for corporate bonds.

     As expected, board member Goushi Kataoka dissented for the fifth straight

meeting after taking office in July. He continued to argue that additional

easing would be necessary to achieve the 2% inflation target at an early stage,

but didn't propose any specific policy action.

     In the bank's monetary policy statement, Kataoka was quoted as saying the

BOJ should try to hit the inflation 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 broadly be lowered further."

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

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