MNI POLICY: BOJ Kataoka Calls For Pre-emptive Policy Action

     TOKYO (MNI) - Bank of Japan board member Goushi Kataoka said Wednesday that

it is vital for the BOJ to take pre-emptive policy action if needed as it will

be too late to act after confirming a worsening of the underlying trend of

prices through economic data.

     However, Kataoka didn't elaborate on how and when the BOJ would consider

further easing. Kataoka was speaking to business leaders in Hakodate City.

     Kataoka, a former private-sector economist, has said previously it is

appropriate for the BOJ to strengthen monetary easing by lowering the short-term

policy interest rate.

     He also said that it is appropriate to revise the forward guidance for the

policy rates to relate it to the price stability target.

     At the July 29-30 meeting, the BOJ backed away from any pre-emptive easing

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

moderately, underpinned by solid domestic demand, although it admitted to

greater downside risks to both activity and prices.

     The BOJ warned, "In particular, in a situation where downside risks to

economic activity and prices, mainly regarding developments in overseas

economies, are significant."

     The bank added, "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."

     Other key points from Kataoka's speech:

     --Coordination between monetary and fiscal polices is necessary as

uncertainty over economic and price conditions have heightened.

     --The risks are increasing that a recovery for the global economy, which is

expected in or after the second half of this year, will be delayed and the

degree of economic recovery will be less than expected.

     --The BOJ must pay attention to downside risks to the global economy as the

end of trade friction isn't yet in sight.

     --Japan's economy continues to be supported by domestic demand, which has

been offset the weakness of overseas demand.

     --Downside risks to Japan's economy are great and the BOJ needs to keep a

close eye on how a worsening of global demand affects domestic demand.

     --Capital investment remains solid but the expansion of capex could pause

from now on. Capital investment plans remains solid as a whole but capital

investment by manufacturers has been steadily affected by the slowdown in

overseas economies.

     --Private consumption before the consumption tax hike to 10% from 8% on

Oct. 1 remains moderate. But careful attention should be paid to post-hike

demand.

     --Japan's inflation rate will not rise toward 2% as it is difficult that

the improving output gap leads to a rise in inflation rate. The headwind for

Japan's inflation rate from foreign exchange rate moves amid easy policy by

other central banks will increase.

--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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