MNI INTERVIEW: BOJ Policy Not True Forward Guidance- Ex-Offc'l

--EX-BOJ Momma: Comms "Simple, Intelligible", But Not Real Forward Guidance

--Ex-BOJ Momma: Unsure How Japan Econ returns to Potential Growth

--Ex-BOJ Momma: Prolonged Low Rates Might Have Lowered Inflation View

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan's current communication on policy rates is

"simple" and "intelligible" but can't be seen as true forward guidance as it

doesn't act to strengthen easy policy, according to a former BOJ executive

director.

     The BOJ's latest statement is fully consistent with its policies and offers

no surprises, but it is "questionable that it is forward guidance," said Kazuo

Momma, now executive economist at Mizuho Research Institute, told MNI this week.

     Momma explained that forward guidance usually comes with a prices

commitment and would strengthen easy policy, helping lower long-term interest

rates. However, he noted, the BOJ's current commitment just described current

policy and didn't act to strengthen the degree of easy policy.

     --MAINTAIN GUARD

     The former chief economist said the BOJ will have to maintain its recently

strengthened guard against a slowing of momentum towards higher prices as there

are no signs of an improved outlook.

     "The BOJ strengthened its guard against price momentum in September, saying

that it is becoming necessary to pay closer attention to the risk that momentum

will be lost," Momma said.

     "If economic and financial conditions return to the levels seen before

September, the BOJ won't need to be worried about price momentum. But the

economy continues to be in a delicate stage and its outlook is fragile, so the

central bank will not see conditions that allows it to ease its warning stance,"

Momma said.

     Long a critic of current policy, Momma argued that the BOJ has been saying

for more than six years that Japan's inflation rate will rise toward 2% but "had

failed to hit the target and would continue failing to hit the target in the

future."

     He suggested that the BOJ should examine the possibility that prolonged low

interest rates may have lowered inflation expectations, although he didn't

expect any great change in their position.

     "Central banks, including the BOJ, will not admit that low interest rates

over a prolonged period lower inflation expectation," he said.

     --FALLING TOLERANCE

     Momma agreed with the BOJ view that capital investment remains strong but

said he less in tune with the view that households' tolerance of higher prices

had increased.

     "Capital investment remains solid and capex will not fall sharply, but it

isn't so strong as to offset weak factors, such as private consumption and

exports, and will not be a driving force for an economic recovery," Momma said.

     Momma noted there is a concern that consumer demand could become less of a

driver for the economy as the tight labor market eases.

     "There are concern over the outlook for private consumption as growth of

wages is slowing and consumer confidence is worsening," Momma said.

     He warned that careful attention should be paid to how slowing consumer

confidence will dampen demand. "Looking ahead, unless the underlying trend of

private consumption after the post-sales tax hike impact becomes clearer, it

would not forecast how the economy returns to the potential growth (in or after

the first quarter of 2020)."

--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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