MNI INSIGHT: BOJ To Keep 2% Timeframe; To Stand Pat On Policy

--BOJ Officials Vigilant To Strengthening Yen Impact

By Hiroshi Inoue

     TOKYO (MNI) - The current pick-up in Japan's inflation rate is slower than

Bank of Japan officials were expecting earlier this year, but the BOJ board will

keep the estimated timing of hitting its 2% price target at "around fiscal 2019"

when its two-day meeting ends on April 27, MNI understands.

     The momentum toward hitting the 2% price target hasn't gained impetus but

remains on track, the BOJ views.

     The BOJ board under the new executives, the reappointed Haruhiko Kuroda as

governor and the new deputy governors Masayoshi Amamiya and Masazumi Wakatabe,

will likely stand pat on monetary policy at the meeting.

--2% FY2020 INFLATION

     Following the meeting, the BOJ board will release its medium-term economic

growth and inflation rates until fiscal 2020 to March 31, 2021. The board's

median forecast for inflation rate, measured by core consumer price index

excluding fresh food, in fiscal 2020 -- the first forecast -- will be around

+2.0%.

     The board's median forecasts for core CPI this fiscal year and in fiscal

2019 will not be revised much from the +1.4% and +1.8% presented in January.

--INFLATION STILL WEAKER

     "The picture is unchanged that the economy is recovering as (officials)

expected but inflation rates are slow to respond to an economic recovery. But

the momentum toward achieving the 2% price target is maintained," a person

familiar with BOJ thinking said.

     The source added that BOJ officials are focused on how inflation rates will

accelerate in the coming months following corporate annual price revisions and

wage hikes.

     The latest government data showed that the national average core consumer

price index (excluding fresh food) rose 1.0% on year in February, up from +0.9%

in January, December and November, but is still below the BOJ's 2% target.

     The core-core CPI (excluding fresh food and energy) rose just 0.5% on year

in February, after rising 0.4% in January.

     The BOJ board has been expecting that firms' gradually shift their stances

toward raising both wages and prices with the improvement in the output gap.

     Transportation and dining-out industries, both facing severely higher

costs, are raising their retail prices and the output gap continues improving.

However, corporate price hikes haven't fully filtered through to government

data.

     BOJ officials noted that it takes time to see the rise in inflation rates

caused by corporate price-hikes and the improving output gap filter through to

data.

--TROUBLESOME STRONGER YEN

     Volatility in global financial markets has been increasing since February

and it is increasing uncertainty over future economic activity. However, BOJ

officials maintain the view that Japan's economy is likely to continue expanding

moderately based on solid global and domestic demand.

     Meanwhile, BOJ officials are vigilant against a stronger yen, which could

quickly dampen stock prices and sentiment, undermining the virtuous cycle from

income to spending.

     According to another person also familiar with BOJ thinking, "Compared with

the previous Outlook Report in January, a prominent change (to the situation) is

the level of the dollar/yen."

     He added that a stronger yen is the most troublesome factor for Japan's

economy and inflation rates.

     The dollar traded around Y107.10 in Tokyo Wednesday, compared with around

Y110 in January, and above the average predicted exchange rate expected by major

manufacturers of Y109.66 seen in the BOJ March Tankan survey.

     BOJ officials don't expect the current dollar/yen level to immediately

worsen the virtuous cycle from income to spending in both corporate and

household sectors, but they remain watchful.

--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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