MNI POLICY:BOJ Minutes:JGB Functioning Rises; Must Watch Risks

     TOKYO (MNI) - Bank of Japan board members agreed that prolonged downward

pressure on financial institutions profits could create the risk of a gradual

pullback in financial intermediation and destabilizing the financial system, but

they shared the view that the BOJ needs to pay attention to developments in

their situation and saw no imminent need of adjusting the easy policy to

mitigate the side-effects of that policy, the minutes of the BOJ's October 30-31

policy meeting released Wednesday showed.

     At the meeting, the BOJ board decided in a 7-to-2 vote to stand pat on

monetary policy, leaving yield curve control of the asset purchases unchanged,

as Japan's economy is expanding moderately despite the 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.

     The BOJ board revised down its medium-term inflation projection for the

current fiscal year to 0.9% from the 1.1% outlined in July, the BOJ quarterly

Outlook Report released Wednesday showed.

     The BOJ also lowered their median inflation rate in fiscal 2019 to 1.4%

from the 1.5% seen in July and the median inflation rate in fiscal 2020 was also

lowered to 1.5% from 1.6% previously.

     Other key points from the minutes:

     --One member said "the current situation in which the inflation rate didn't

seem to be accelerating toward 2% should be taken seriously, and that in this

situation, making the range of movement in long-term yields more flexible, as

anticipated by some market participants, could be viewed as though the BOJ's

commitment to achieving 2% inflation was compromised."

     --One member emphasized the risk that banks' profits would decrease at an

accelerated pace if the economy moved into a downturn and their credit costs

materialized.

     --"Most members shared the recognition that, although it was necessary to

carefully examine the fact that firms' cautious wage- and price-setting stance

and households' cautiousness toward price rises, had been persistent, the

momentum toward achieving the 2% inflation was being maintained."

     --"Some members pointed out that the flexible conduct of market operations

and asset purchases decided in July generally had been exerting the intended

effects, given that indicators for the degree of liquidity and functioning of

the Japanese government bond market had improved to some extent."

     --Some members said "it would still take some time for inflation

expectations to rise" to the 2% target.

     --One of those members said that inflation expectations continued to show

relatively weak development and it could not be judged at present that the

inflation rate would increase toward 2%.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI Washington Bureau; tel: +1 202-371-2121; email: kevin.kastner@marketnews.com

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