MNI POLICY: BOJ Cuts FY19, FY20 Inflation Fcast; Bigger Risks.

--BOJ Keeps FY21 inflation rate unchanged at 1.6% 

--Momentum For 2% Price Target Intact; Not Sufficiently Firm

     TOKYO (MNI) - The Bank of Japan will not hit its 2% price target in the

current projection period, the latest quarterly Outlook Report released Tuesday

shows, with inflation still forecast to be only 1.6% in 2021.

     Policymakers still see momentum toward achieving the 2% price target, but

vowed to keep the easy policy for an extended period of time, at least through

around spring 2020, as they noted the extent of downside risks, the report said.

     The BOJ revised down its inflation projection for fiscal 2020 to 1.3% from

the 1.4% presented in April, following a run of weak price data and slow

corporate price hikes, the BOJ said, also lowering the median inflation rate

forecast for fiscal 2019 to 1.0% from 1.1%.

     Other key points from the Outlook Report:

     --The BOJ maintained its cautious view on the balance of risks, saying they

were "skewed to the downside, particularly, regarding developments in overseas

economies."

     --Price risks also faced downward pressure form "economic activity and

uncertainties over developments in medium- to long-term inflation expectations,"

the report said.

     --"The momentum toward achieving the 2% price target is maintained but it

isn't not sufficiently firm," the BOJ report added.

     --According to the BOJ, "there is no sign so far of excessively bullish

expectations in asset markets or in the activities of financial institutions.

However, 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."

     --The BOJ maintained an optimistic view, saying "Japan's economy is likely

to continue on an expanding trend throughout the projection period -- that is,

through fiscal 2021 -- despite being affected by the slowdown in overseas

economies for the time being."

     --The consumer price index "has continued to show relatively weak

developments compared to the economic expansion and the labor market

tightening," the report noted

     --The BOJ maintained the view that Japan's inflation rate is likely to

increase toward 2% "mainly on the back of the output gap remaining positive and

medium- to long-term inflation expectations rising."

--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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