MNI POLICY: BOJ: FY21 Inflation Rate at 1.6%; Momentum Intact

     TOKYO (MNI) - The Bank of Japan board's median forecast for inflation in

fiscal 2021 is +1.6%, indicating that the 2% price stability target will not be

achieved over its projection period, the BOJ quarter Outlook Report released

Thursday showed.

     But the policymakers maintained the view that the momentum towards

achieving the 2% price target is maintained, vowing to keep their easy policy

for an extended period of time, at least through 'around spring 2020', the

report said.

     It also said large downside risks to economic activity and prices.

     After a run of weak price data and slow corporate price hikes, the BOJ

revised down its inflation projection for fiscal 2020 to 1.4% from the 1.5%

presented in January, following, although they left the median forecast for

fiscal 2019 unchanged at 1.1%.

     Other key points from the Outlook Report:

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

nine-member board in fiscal 2021 -- the first forecast for that year -- is

+1.6%, which is still below the 2% price target.

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

+1.4% from the +1.5% made in January, while that for fiscal 2019 was left

unchanged at 1.1%.

     --The BOJ said, "With regard to the outlook for economic activity, risks

are skewed to the downside, particularly regarding developments in overseas

economies." "Regarding the outlook for prices, risks are skewed to the

downside," it added.

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

revised down to +0.8% from +0.9% made in January. The GDP projections for fiscal

2020 was also revised down to 0.9% from 1.0% made in January.

     --The median forecast for real GDP in fiscal 2021 -- again the first

forecast -- is x1.2%.

     --The BOJ continues to see Japan's potential growth rate in a range of 0.5%

to 1.0%.

     --The BOJ board tweaked the assessment of the economic climate, saying that

Japan's economy has been on a moderate expanding "trend", with a virtuous cycle

from income to spending operating, although exports and production have been

affected by the slowdown in overseas economies. The previous assessment didn't

include the wording of "trend."

     --INFLATION VIEW FLAT

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

expectations have been more or less unchanged." "The momentum toward achieving

the price stability target of 2% is maintained but is not yet sufficiently

firm," the report added.

     --"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 report said, "The year-on-year rate of change in the CPI has been

positive but has continued to show relatively weak developments compared to the

economic expansion and the labor market tightening."

     --The BOJ repeated its assessment that "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," the report said.

     --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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