MNI POLICY: BOJ Cuts FY19, '20 Inflation Rate; Momentum Intact

     TOKYO (MNI) - The Bank of Japan revised down its inflation projection for

fiscal 2019 to 0.9% from the 1.4% presented in October, following a run of

weaker than expected price data and downward pressure from the fall in crude

prices on consumer prices, the BOJ quarterly Outlook Report released Wednesday

showed.

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

2020 to 1.4% from 1.5% made in October.

     However, the board maintained the 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."

     Other key points from the Outlook Report:

     --The median forecast for core CPI (excluding fresh food) by the

nine-member board was revised down to +0.9% for fiscal 2019 from +1.4% projected

in October.

     --The median inflation forecast for fiscal 2020 was also revised down to

+1.4% from +1.5% made in October, while that for fiscal 2018 was lowered to

+0.8% from +0.9%. The forecast excludes the direct impact of a sales tax hike to

10% from 8% planned in October 2019 and policies concerning the provision of

free education.

     --The BOJ repeated its risk analysis presented in October, saying, "With

regard to the risk balance, "risks to both economic activity and prices are

skewed to the downside."

     --The median economic growth forecast for the current fiscal year was

revised down to +0.9% from +1.4% made in October. But the GDP projections for

fiscal 2019 and 2020 were revised higher from 0.8% to +0.9% and +1.0%

respectively. The BOJ continues to see Japan's potential growth rate in a range

of 0.5% to 1.0%.

     --INFLATION EXPECTATIONS FLAT

     The board maintained its cautious view, repeating, "Inflation expectations

have been more or less unchanged." The inflation outlook among firms and

households has bottomed out, but it has not shown a clear uptrend.

     "The year-on-year rate of change in the consumer price index (excluding

fresh food) has been positive but has continued to show relatively weak

developments compared to the economic expansion and the labor market

tightening," the BOJ said.

     The BOJ repeated its assessment, saying, "The momentum toward achieving the

2% price target is maintained but it is not yet sufficiently firm."

     "Firms' cautious wage- and price-setting stances" have not yet clearly

changed, and "firms moves toward raising productivity as well as the

technological progress in recent years" continues, the BOJ added.

     --NO OVERHEATING SEEN

     The bank also repeated: "Examining financial imbalances from a longer-term

perspective, there is no sign so far of excessively bullish expectations in

asset markets or in the activities of financial institutions."

     But it warned that any "Prolonged downward pressure on financial

institutions' profits with the low interest rate environment and severe

competition among financial institutions continuing, could create risks of a

gradual pullback in financial intermediation and of destabilizing the financial

system."

     As for the conduct of monetary policy, the BOJ repeated it would 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 price stability target."

--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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