MNI INTERVIEW: See BOJ Policy Unch Unless Yen Rises: Ex-Offc'l

     TOKYO (MNI) - The Bank of Japan is unlikely to further ease policy unless

risks grow of a dramatic rise in the value of the yen, although a further

deterioration in the global economy that pushes Japan into recession could also

trigger action, a former senior BOJ official told MNI Tuesday.

     With limited stimulative policy options open to either the Bank of Japan or

the government, policy makers are set to take a 'wait-and-see' approach unless a

sharp yen appreciation towards Y90 looks possible, Takashi Kozu, now the

president of the Ricoh Institute of Sustainability and Business, said in an

exclusive interview.

     Deepening the negative interest rate from -0.1% is an option open to the

BOJ to fight a stronger yen but that would need to be used alongside measures

that will compensate the higher financial burden on banks, he said.

     In line with other former officials, Kozu, who held a number of senior

positions at the bank, said achieving the 2% price target was unlikely under the

current conditions, but added the target could be hit if the yen weakened

significantly.

     --GLOBAL GROWTH

     Slowing global growth is a concern for the BOJ, who on Friday lowered its

assessment of exports and industrial production, reflecting weakness in China

and Europe, but Kozu believes the worse may be over, although global growth will

remain sluggish.

     "The Chinese economy will not worsen sharply due to its economic stimulus

measures and the global economy will somewhat improve" but the global economy

will not accelerate as it is facing various issues, he said.

     Among the issues he sees are a weak banking system in Germany, unstable

political conditions in France and Germany, along with Brexit in the UK. South

Korea and Taiwan are suffering from a cyclical weakness in IT demand, he said.

     However, the U.S. economy remains firm, currently offering support to the

global economy, although it may see a cyclical slowdown,  he said.

     --ALREADY STIMULUS HEADROOM

     MNI understands that neither the BOJ or government and the BOJ will easily

drop the wording "recovering" or "expanding" in describing Japan's current

economic climate, as an admission of a slowdown will see both having to

implement fresh stimulus measures.

     According to Kozu, the BOJ already has some leeway to increase stimulus,

with plenty of headroom in its bond buying program.

     At present, the BOJ is buying around Y40 trillion JGBs annually under its

QQE, but can increase that to Y80 trillion if needed in the economy worsens, he

said.

     The BOJ has scaled back of bond buying to try and address concerns over

market functioning as the stock effects from their huge bond holdings affected

JGB pricing.

     He also said the BOJ could allow the 10-year JGB yield to fluctuate in a

wider band without changing the target level from the current 0%, particularly

if they had communicated to the markets that this wasn't a tightening move.

     Kozu also cautioned that the BOJ trying to hold the 10-year yield close to

zero risked the chance of a sharp correction in the future.

     "Containing the 10-year bond yield in a narrow and unusual level

accumulates the risk that the 10-year bond yield skyrockets once the BOJ leaves

the interest rate to markets," he 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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