MNI INTERVIEW: Ex-BOJ Offc'l: Japan Econ Slowing, No Recession

--Ex-BOJ Momma: Global Growth Weakening, China A Concern

--Ex-BOJ Momma: BOJ Policy "Game Over,"; CPI

--Ex-BOJ Offl: BOJ Has No Effective Tool To Curb Stronger Yen

--Ex-BOJ Offl: Japan Core-Core CPI Unlikely To Rise To 1% 

By Hiroshi Inoue

     TOKYO (MNI) - Japan's economy is slowing, pressured by weaker global

growth, but is unlikely to fall into recession as domestic demand remains solid,

a former Bank of Japan chief economist told MNI in an interview Tuesday.

     "I don't have perfect confidence in my view, but Japan's economy will slow

although it will not fall into recession," Kazuo Momma, now executive economist

at Mizuho Research Institute, said.

     According to Momma, domestic capital investment on the wane, but not at a

pace to trigger recession, as non-manufacturers' investment appetite remains

strong.

     --GLOBAL GROWTH

     Momma expressed concern over the growth outlook for China and the impact of

the slowing global demand on the U.S. economy.

     China is implementing stimulus measures to prevent a worsening slowdown,

but the effectiveness of Beijing's moves remain uncertain, he warned.

     The former official also expressed concern that the slowing global economy

would have a knock-on impact on the yen, especially in the U.S. slows markedly.

     "If the U.S. economy clearly slows, it will increase investors' risk-off

attitude, which in turn will cause a stronger yen," he said.

     "The worst (would be) that the U.S. government blames a slower economy on a

strong dollar," Momma said, saying such comments would drive a market view that

Washington wants to weaken the dollar, further strengthening the yen.

     Despite concerns over a stronger yen, Momma said the BOJ has no effective

tools to curb it.

     "The BOJ has no effective policy tool to fight a yen rise. The only

possible tool is that the BOJ emphasizes its powerful easing or increases the

flexibility of the easy policy under the current policy framework through

communication with markets," Momma said.

     Momma noted that BOJ policy had very obvious pros and cons, but accepted

there was no easy answer to ease the observed downsides, but saying it was "game

over" for further easy policy, indicating a new framework was needed.

     "I can't come up with the policy where the benefits clearly exceed the

costs," he said.

     Last year, Momma told MNI that the BOJ must rethink how to achieve its

target, as they cannot address the accumulated side-effects of easy policy under

their current policy framework.

     --INFLATION

     Inflation remains a problem for the BOJ and Momma noted a possibility that

the core-core CPI measurement falls to negative territory if the yen sees strong

gains.

     "It is unlikely Japan's core-core consumer price index (excluding fresh

food and energy item) will rise to 1% on year. Although the key price index may

temporary rise to 1%, it is unlikely to stabilize at 1%," Momma said.

     Japan's core-core CPI, the measure BOJ officials focus on to gauge the

underlying trend, only rose 0.3% y/y in December.

--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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