MNI POLICY: BOJ July Opinions: BOJ Won't Fall Behind Curve

     TOKYO (MNI) - One Bank of Japan board member voiced concern over the impact

of both the October sales tax hike and volatile financial markets on Japan's

economy, saying that the bank will not fall behind the curve, according to the

summary of opinions from the July 29-30 meeting released Wednesday.

     Another member said, "Since Japan's economy is susceptible to ongoing

U.S.-China trade friction and the inflation rate is far from 2%, it would be

necessary for the BOJ to consider calls for conducting so-called preventive

monetary easing against downside risks to economic activity and prices."

     A further member said, "It is necessary to consider the pros and cons of

various easing measures that involve such factors as quantity, quality, and

interest rates."

     However, there was no discussion of concrete policy tools at the meeting.

     The BOJ backed away from any pre-emptive easing measures at the meeting,

leaving policy unchanged, as the economy continues to expand moderately,

underpinned by solid domestic demand, although policymakers admitted to greater

downside risks.

     "The bank will not hesitate to take additional easing measures if there is

a greater possibility that the momentum toward achieving the price stability

target will be lost," the BOJ said in the accompanying statement as a nod to

those risks.

     "In particular, in a situation where downside risks to economic activity

and prices, mainly regarding developments in overseas economies, are

significant," the BOJ added.

     Other key points from the summary of opinions:

     --"Given that downside risks to economic activity and prices remain

significant, it is essential for the BOJ to communicate that, if there is

concern that the momentum toward achieving the price stability target will be

lost, it will not hesitate to implement necessary policy measures appropriately

to address these risks."

     --"It is important to make a preventive and preemptive policy response to

downside risks to prices. It is necessary to further strengthen monetary easing

through both yield curve control and forward guidance."

     --"If overseas economies deteriorate further and this has a negative impact

on Japan's economic activity and prices, the BOJ should respond swiftly while a

monetary and fiscal policy mix is being pursued. Having said that, it is

important to continue with the current monetary easing policy for the time being

while paying attention to the side effects on the financial system."

     --"A recovery in the global economy, which is expected to be seen in the

second half of the fiscal year, does not seem to be observed before the

scheduled consumption tax hike."

     --"As the risks concerning external demand increasingly have been skewed to

the downside, it is difficult to be optimistic about Japan's economic activity.

The resultant negative impact of external demand has been steadily affecting

domestic demand, and if the risk factors both at home and abroad materialize at

the same time, there is some possibility that the economy will head toward a

downturn."

     --"It cannot be judged that the inflation rate will accelerate toward the

price stability target of 2% within the projection period. If economic and

financial conditions deteriorate, it is expected that the possibility of the

inflation rate becoming negative will be in sight".

--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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