MNI INSIGHT: BOJ Sees 2% As L/T Goal; Allow Policy Flexibility

--BOJ Governor Kuroda To Maintain Policy Language In Public

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan will no longer consider its 2% inflation

goal as a rigid target, seeing it as a medium- to-long-term aim, although

Governor Haruhiko Kuroda will continue to say the central bank wants to hit

their goal at the earliest opportunity, MNI understands.

     This shift in stance will allow the BOJ to consider unwinding its easy

policy before hitting the 2% price target, giving them greater opportunity to

address any risks from the side effects from low interest rates, even if the

economy is still in recovery mode.

     BOJ officials will need to see the inflation rate stable above 1% as the

minimum necessary condition to consider adjusting the easy policy.

     It is unlikely that Kuroda will publicly admit that 2% is now a the medium-

to long-term target, as such a comment could be interpreted as meaning the BOJ

is set to unwind its easy policy, triggering higher interest rates and stronger

yen, MNI has learned.

     Several members of the BOJ's board are understood to share the view on a 2%

longer-term price target, although Deputy Governor Masazumi Wakatabe and board

member Goushi Kataoka are both believed to be against.

     The board shares the view that it will take longer than expected to achieve

their price target, as the assumption of higher wages and inflation is not yet

entrenched amongst households and firms. Most board members don't see the need

to conduct further easing as long as the path toward hitting their goal remains.

     The BOJ tweaked its policy guidance at the April meeting, vowing to

maintain current easy policy at least until "around spring 2020," replacing the

previous phase "for an extended period of time", reflecting the view that the

bank must maintain the current easy policy as downside risks to the economy

impact of the October consumption tax hike could emerge in Q1 2020.

     The new forward guidance for policy rates will enable the BOJ to address

either a stronger or weaker economy after the spring 2020, although it stands

ready to extend the calendar guidance if needed.

--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

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