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

     TOKYO (MNI) - The Bank of Japan board decided to stand pat on monetary

policy Thursday, voting 7-2 to leave yield curve control and asset purchases

unchanged, with the board seeing Japan's economy still expanding moderately,

despite downside risks.

     The BOJ vowed to maintain its current easy policy "for an extended period

of time," taking into account uncertainties regarding economic activity and

prices, including the effects of the consumption tax hike planned for October

2019.

     These are the key points from the BOJ board decision, which came after the

latest two-day policy meeting :

     --Under the yield curve control framework adopted in September 2016, the

BOJ will keep the target for the overnight interest rate at -0.1%.

     -- The BOJ will continue buying JGBs to stabilize the 10-year yield "around

zero percent" but it will also allow the long-term interest rate to "move upward

and downward to some extend" in line with the changes in economic growth and

inflation.

     In July, 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.

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

Kataoka continued to call for additional easing. He said, "It was desirable to

strengthen monetary easing so that the yield on JGBs with maturities of 10 years

and longer would broadly be lowered further."

     --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 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.

     --EXTENDED PERIOD

     -On the conduct of monetary policy, the BOJ maintained the view the bank

"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, despite 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

repeated the view.

     -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, Brexit

negotiations and geopolitical risks.

--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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