MNI INSIGHT: BOJ Sees No Need To Strengthen Forward Guidance

By Hiroshi Inoue

     TOKYO (MNI) - Bank of Japan officials see no need to strengthen forward

guidance, despite some speculation in financial markets that the central bank

could tweak the wording in coming months, as the bank believes the current

wording is adequate, MNI understands.

     The BOJ has vowed to maintain the current extremely low levels of short-

and long-term interest rates "for an extended period of time, taking into

account uncertainties regarding economic activity and prices including the

effects of the consumption tax hike in October 2019."

     A strengthening of forward guidance ahead of the government's October

consumption tax hike is one of the policy options open to the BOJ if it needs to

expand its easy policy.

     --BEYOND OCTOBER

     MNI understands that although the tax hike is one possible reason to extend

easy policy for a longer period, the overriding factor remains "uncertainties

regarding economic activity and prices."

     According to the insider, those uncertainties "will continue after the tax

hike" and its highly unlikely the BOJ will unwind policy in the immediate

aftermath of the hike as it will need to monitor developments.

     The BOJ has committed to expand the monetary base until core CPI settles

above 2%, the "overshooting commitment," but it hasn't commit to raise and lower

policy interest rates.

     BOJ officials are uneasy over extending forward guidance considering the

high level of uncertainties around prices, as they are still unsure how best to

deal with the accumulated costs from the prolonged easy policy.

     --FED POLICY

     The BOJ is closely eyeing how the U.S. Federal Reserve goes about a review

of the policymaking processes.

     The Fed, not even close to considering Japanese-style 'easy policy', is

holding a conference in Chicago in early June to review of their current

framework for monetary policy, policy strategies and policy tools.

     But there is concern at the BOJ as to how the Fed -- and therefore the BOJ

-- will have to react to a further slowdown in the global economy.

     If the Fed lowers the fed funds rate and reimplements quantitative easing,

it will push the yen higher, prompting the BOJ to increase the monetary base to

ease that upward pressure.

     Another person familiar with BOJ thinking said if Fed action pushed the yen

higher, the BOJ would have to mirror their action to curb the rise.

     "A stronger yen is the most troublesome factor for Japan's economy and

consumer prices. A strong yen will lower import price and increase downward

pressure on consumer prices," a person who is familiar with BOJ thinking 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

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