MNI POLICY: BOJ Keeps Policy Target; Rates To Remain Very Low

     TOKYO (MNI) - The Bank of Japan board, as widely expected, decided

Wednesday in a 7-to-2 vote to maintain its current monetary easing stance under

the yield curve control framework it adopted in September 2016, vowing to keep

very low interest rates "for an extended period."

     Under the framework, the BOJ has been trying to stabilize the 10-year

government bond yield, the benchmark for long-term borrowing costs, at around

zero percent and keep the overnight interest rate at -0.1%.

     At its last meeting on July 30-31, 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 bank "strengthened" the framework, allowing a wider trading range of

+0.2% to -0.2% for the 10-year Japanese government bond yield, double the

previous, unofficial range of +0.1% to -0.1%.

     --KATAOKA, HARADA DISSENT

     Reflationist board members Yutaka Harada, a former government economist,

and Goushi Kataoka, a former private-sector economist, dissented again,

following their objection to the July decision.

     Harada called the guideline for market operations "too ambiguous" while

Kataoka continued to call for additional easing in the face of slow price gains

and downside risks ahead.

     On forward guidance, Harada also dissented, arguing that it would be better

to adopt one that would "further clarify its relationship" with the inflation

target. Kataoka was also opposed. He repeated that it would be better to promise

additional easing in the event of a downward revision to the board's longer-term

inflation outlook.

     --FOR EXTENDED PERIOD

     On the conduct of monetary policy, the BOJ "intends to maintain the current

extremely low levels of short- and long-term interest rates for an extended

period of time, taking into account uncertainties regarding economic activity

and prices including the effects of the consumption tax hike scheduled to take

place in October 2019."

     Officially, the BOJ will maintain the annual pace of its JGB purchases at

around Y80 trillion, although the pace has declined sharply as the accumulated

effects of keeping rates down with asset purchases have intensified. The bank

noted it will conduct the purchases "in a flexible manner."

     The scale of asset purchases, such as exchange-traded funds (ETFs), Japan

real estate investment trusts (J-REIT), commercial paper and corporate bonds was

unchanged at Y6 trillion, Y90 billion, Y2.2 trillion and Y3.2 trillion,

respectively.

     --ECON ASSESSMENT UNCHANGED

     The board maintained its economic assessment amid growing uncertainties

over global demand caused by the U.S.-China trade dispute.

     "Japan's economy is expanding moderately, with a virtuous cycle from income

to spending operating, it said, adding that the economy "is likely to continue

to be a moderate expansion."

     "Overseas economies have continued to grow firmly on the whole," the BOJ

said.

     The bank repeated that exports, industrial production and business

investment are on an uptrend while private consumption has been increasing

moderately, albeit with fluctuations.

     The BOJ continues to see risks to the outlook in the U.S. economic

policies' impact on global financial markets, the consequences of protectionist

moves, developments in emerging and commodity-exporting economies, negotiations

on Britain's exit from the European Union and geopolitical risks.

--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

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