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MNI POLICY: BOJ Kataoka Urges More Easing Amid Uncertainties

     YOKOHAMA, Japan (MNI) - Bank of Japan board member Goushi Kataoka repeated
his earlier remarks Thursday, calling for stronger monetary easing to cope with
downside risks in the future.
     He also told business leaders in Yokohama City, south of Tokyo, that the
improvement in the output gap is likely to slow next year and U.S. trade
disputes will hurt Japanese exports.
     "The BOJ should conduct additional easing, instead of strengthening the
policy framework for its sustainability, as the board has revised down its
inflation outlook."
     At its July 30-31 meeting, the BOJ board decided in a 7-to-2 vote to make
its long-term interest rate target and asset purchases more "flexible," allowing
the nearly flat Japanese government bond yield to steepen slightly in line with
firmer growth and inflation.
     The BOJ adopted "forward guidance" for the policy rates to show that it is
"strengthening its commitment" to guiding low inflation to its stable 2% target.
     Kataoka dissented, arguing that it would be better to promise additional
easing in the event of a downward revision to the board's longer-term inflation
outlook.
     --LOWER LONG-END YIELDS
     In his speech on Thursday, Kataoka said that the BOJ needs to lower
Japanese government bond yields with maturities of 10 years and longer, which he
said would help the output gap improve further and support wage and price hikes.
     "It is necessary for the BOJ to make a commitment to conducting additional
easing if it revises down its assessment of medium- to long-term inflation
expectations," he said.
     Kataoka also said that the BOJ doesn't need to allow the long-term interest
rate to move in a wider range because the board's inflation projection was
revised down in July.
     --SLOWER GROWTH SEEN
     "If the BOJ allows the long-term interest rate to rise, even temporarily,
it would delay the timing of achieving the 2% price target," Kataoka said.
     "The output gap is expected to stay in positive territory but the pace of
its improvement will slow in or after fiscal 2019, when the economic growth rate
is expected to slow," he said. "It is unlikely that the momentum toward
achieving the 2% price target will pick up under the current policy framework."
     As for downside risks, Kataoka said the BOJ should pay more attention to
overseas economies amid growing uncertainties.
     --TRADE ROW IMPACT
     "If the (U.S.-China) trade friction leads to lower stock prices and a drop
in capital investment through the worsening of corporate sentiment, its impact
on the global economy cannot be ignored," Kataoka warned.
     He also said that the BOJ must not underestimate the impact of the sales
tax hike scheduled in October 2019 on consumer spending.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com
[TOPICS: MAJDS$,MMJBJ$,M$A$$$,M$J$$$,MT$$$$]

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