MNI POLICY: BOJ On Hold; Keeps Forward Guidance; Eyes Impact

     TOKYO (MNI) - The Bank of Japan left policy unchanged Thursday, seeing

Japan's economy continuing to expand moderately despite growing downside risks.

     The Board voted 7-2 to keep monetary policy unchanged, maintain its yield

curve control and leave asset purchases unchanged.

     The BOJ also restated the forward guidance for policy rates, saying it will

maintain the easy policy "at least through around spring 2020."

     Despite intensified trade tensions and increasing uncertainties over the

global economy, the BOJ maintained its overall economic assessment as recent

data hadn't altered the baseline outlook, with a "virtuous cycle from income to

spending operating".

     The BOJ maintained the view that the economy is likely to continue on an

expanding trend, despite the impact from slowing overseas economies. The

assessment of major economic components was also left unchanged from April.

     Focus now shifts to the July 29-30 meeting, when the board releases its

quarterly Outlook Report, including the medium-term economic growth and

inflation forecasts.

     The key points from the BOJ board decision:

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

BOJ will continue to target 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.

     --The BOJ continues to see risks to the U.S. policies and their impact on

global financial markets, the consequence of protectionist moves and their

effects; developments in emerging and commodity-exporting economies such as

China; developments in global adjustment in IT-related goods; negotiations on

Britain's exit from the European Union and geopolitical risks and their effects

and geopolitical risks.

     --"Downside risks concerning overseas economies are likely to be

significant, and it also is necessary to pay close attention to their impact on

firms' and households' sentiment in Japan," the BOJ said.

     --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, noting "It was desirable to strengthen

monetary easing" amid heightened uncertainties.

     -- Harada also dissented on forward guidance, 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.

     --As for rate policy, "the bank intends to maintain the current extremely

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

time, at least through around spring 2020," 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

policy effects 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.

--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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