MNI POLICY: BOJ Amamiya: Must Increase Side-effects Vigilance

     SHIMONOSEKI, Japan (MNI) - Bank of Japan Deputy Governor Masayoshi Amamiya

warned Thursday that the central bank must pay greater attention to accumulated

side-effects of easy policy than previously.

     "In order to persistently continue tight the current powerful monetary

easing, it is necessary to contain the accompanying negative effects, or the

side effects," Amamiya said. 

     However, Amamiya didn't outline an immediate need to changing policy,

saying, "The BOJ will pursue powerful monetary easing while thoroughly examining

both the benefits and costs of its policy effects."

     "The BOJ will make policy adjustments as appropriate, taking account of

developments in economic activity and prices as well as financial conditions,

with a view to maintaining the momentum toward achieving the price stability

target,"  he added while speaking to business leaders in Shimonoseki City,

southern Japan. 

     Other key points from Amamiya's speech:

     --"The economy is no longer in deflation, in the sense of a sustained

declines in prices." However, prices remain weak, compared with the economic

recovery and the labor market tightening.

     --"Even amid the economic expansion, there is a combination of various

factors that makes it difficult for wages and prices to rise. It has been taking

time to resolve these factors and such downward pressure on prices may last

longer than expected."

     --"What is important is not temporary price fluctuations but the underlying

trend in prices." "Having said that, there is a possibility that people's

inflation expectations will move upward and downward in line with price

fluctuations, thereby affecting the underlying trend in prices."

     --"Giving due consideration to these points, the BOJ will assess future

price developments and communicate developments in such special factors to the

public in an appropriate manner."

     --Financial markets remain volatile on the back of high uncertainties over

the global economy. "Financial markets both at home and abroad have remained

volatile."

     --"The BOJ will continue to carefully monitor developments in the domestic

and overseas markets, including the effects on firms' and households'

sentiment."

      --"The BOJ is fully aware that prolonged downward pressure on financial

institutions' profits, with the low interest rate environment and severe

competition among financial institutions continue, could create a risk of a

gradual pullback in financial intermediation and of destabilizing the financial

system.

     --POLICY UNCHAGED

     At the January 22-23 policy meeting, the BOJ kept monetary policy

unchanged, maintaining the view that Japan's economy is expanding moderately

despite emerging downside risks. The BOJ vowed to keep the current easy policy

"for an extended period of time."

     In the quarterly Outlook Report, published alongside the meeting outcome,

the BOJ revised down its inflation projection for fiscal 2019 to 0.9% from the

1.4% presented in October. The downgrade came following a run of weaker than

expected price data and downward pressure from the fall in crude prices on

consumer prices.

     The BOJ board also lowered the median inflation rate forecast for fiscal

2020 to 1.4% from 1.5% made in October. They maintained their assessment that

the momentum toward achieving the 2% price target is maintained, although it

isn't sufficiently firm and it remains vigilant against the outlook for

inflation rate, saying, "Risks to both economic activity and prices are skewed

to the downside."

--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

[TOPICS: MAJDS$,MMJBJ$,M$A$$$,M$J$$$,MT$$$$]