MNI: Ex-BOJ Aide: Output Gap To Zero; Price Momentum Risk

     TOKYO (MNI) - Japan's output gap is expected to move toward zero percent

next year, making it difficult for the Bank of Japan to say there is still

momentum toward achieving the 2% price target, a former BOJ official said

Tuesday.

     "Japan's economy will be boosted by economic stimulus measures toward

summer next year but economic growth is expected to slow below the potential

growth rate afterward," said Hiroshi Ugai, managing director and chief economist

of economic research department at J.P. Morgan.

     If, as expected, GDP is below the potential growth rate, it would see the

positive output gap narrow, which in turn will make it difficult for the BOJ to

assess the momentum toward achieving the price target is maintained, Ugai said

at a seminar sponsored by J.P. Morgan.

     According to Ugai, his assessment is that momentum towards the price

stability target is already lost.

     The BOJ has said "the output gap has remained substantially positive, being

at around 1%. With regard to the outlook, the positive output gap is expected to

narrow temporarily but it is likely to widen fairly moderately."

     Japan's estimated positive output gap narrowed to 1.04 percentage points in

the April-June quarter as supply tightened and demand firmed, falling from

1.64pp in January-March, the latest BOJ data showed.

     It was the 11th straight quarter with a positive gap, which should increase

pressure on both consumer prices and inflation expectations, albeit with a lag

of a few quarters.

     Ugai also said that core-core consumer price index, which excludes fresh

food and energy items, is expected to slow to around 0.4% y/y in 2020, which

doesn't help put achievement of the 2% target in sight.

     Ugai added that spring wage negotiations expected before April in 2020 will

be a key factor determining private consumption. "Judging from the expected drop

in corporate profits this year, the conditions surrounding wage hikes next year

is severe," Ugai said.

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: MMJBJ$,M$A$$$,M$J$$$]