MNI POLICY: BOJ Funo: High Downside Risks; Must Watch Momentum

     MATSUE, Japan (MNI) - The Bank of Japan must pay greater attention to the

risk that the momentum toward achieving the price stability target will be lost

amid heightened downside risks to the global economy, board member Yukitoshi

Funo said Thursday.

     "The slowdown in overseas economies continues and downside risks to global

economy is increasing. The current situation warrants for the BOJ to pay more

attention to the risk that the momentum will be lost," said Funo, speaking to

business leaders in Matsue City.

     He added, "We will re-examine developments of economic activity and prices

at the next policy-setting meeting, keeping the current conditions in mind."

     "If there is a risk that the momentum toward hitting the price stability

target, it is necessary for the BOJ to pre-emptively prevent it," Funo added.

     He cited lowering the short- and/or long-term policy interest rates,

expanding asset purchases and accelerating the pace of injecting monetary base

as future policy option. 

     "The BOJ should maintain powerful easy policy in order to achieve price

stability and sustainable economic growth," he added.

     The BOJ left monetary policy unchanged at the September meeting, but vowed

to re-examine economic and price developments in October.

     "(The) slowdown in overseas economies have continued to be observed and

their downside risks seem to be increasing, the BOJ judges that it is becoming

necessary to pay closer attention to the possibility that the momentum toward

achieving the price stability target will be lost," a policy statement said,

following the Board's 7-to-2 vote.

     "The BOJ will re-examine economic and price developments at the next MPM,

when it updates the outlook for economic activity and prices," it added.

     Other key points from Funo's speech:

     --It is vital for the BOJ to keep the positive output gap as long as

possible through low interest rates and to maintain the momentum toward hitting

the price stability target.

     --Japan's prices remain weak compared with the tightness of labor market

conditions and a moderate economic growth.

     --Japan's economy will be influenced by the slowdown in overseas economies

for the time being and the BOJ must pay attention to the impact of the

consumption tax hike to 10% from 8% implemented on Tuesday on private

consumption.

     --The BOJ needs to keep a close eye to the possibility that corporate

price-hike stance will be cautious.

--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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